U.S. Authorities Probe How Smartmatic Won Venezuela Election Pact

From the WS-Jrnl.

WASHINGTON -- Federal investigators are looking into whether Smartmatic Corp., a voting-machine company whose equipment is used widely in the U.S. and abroad, paid bribes to win a Venezuela election contract in 2004.
Smartmatic's actions already are under a separate investigation by the Committee on Foreign Investment in the U.S., which reviews foreign acquisitions to see if they pose national-security concerns.
In 2005, Smartmatic, which is owned by Venezuelan investors who split their time between Caracas and Boca Raton, Fla., purchased a U.S. voting-machine company, Sequoia Voting Systems Inc.
Cfius is looking at whether that acquisition should be reversed on national-security grounds.
At the same time, the Justice Department has been conducting a probe of Smartmatic for possible violations of the Foreign Corrupt Practices Act and recently started looking at possible tax evasion as well, said two individuals familiar with the case. The Justice Department has informed Cfius representatives from U.S. agencies about their inquiry, these people said. Jeffrey Bialos, an attorney for Smartmatic, said yesterday the Justice Department told the company it was looking into its actions, but that Smartmatic wasn't a target of an investigation.
Smartmatic employees haven't been subpoenaed in the inquiry, Mr. Bialos added. That suggests that the probe is at an early stage. "The company believes it conducted itself properly and within the law," Mr. Bialos said.
A Justice Department spokeswoman declined to comment. Smartmatic has drawn attention because of concerns that the government of Venezuelan President Hugo Chavez, an opponent of U.S. policies, has a stake in the company.
That is a focus of the Cfius review. In 2004, Smartmatic's machines were used in an election to recall President Chavez, which Mr. Chavez won handily -- and which members of the Venezuelan opposition say was riddled with fraud. Smartmatic machines will be used Sunday in Venezuela's presidential election.
The company said it is the victim of false allegations made by two former executives, whom the company declined to name. Smartmatic said it would shortly send the two former employees a letter to "cease and desist their activities," which Smartmatic said violated agreements they made with the company. News of the Justice Department probe was reported earlier by el Nuevo Herald, a Spanish-language newspaper in Miami.
Essentially, the Justice Department is looking into whether Smartmatic got its start in Venezuela by bribing officials and then improperly avoiding its tax liability in the U.S. The company says it paid $1.5 million to a Venezuelan consultant who is close to the Chavez government and helped to win Smartmatic business.
The allegation being investigated is that Smartmatic actually paid as much as $4 million to the consultant, then deleted a substantial portion of those payments from its corporate records to hide the extent of its payments to a friend of the Chavez regime.
Antonio Mugica, Smartmatic's chief executive, said the company had budgeted a larger amount for the consultant than it ended up paying him, thus explaining the difference between the two amounts. The tax question dates to late 2004 when Smartmatic scrapped a simple corporate structure, under which it was based in the U.S. with a Venezuelan subsidiary.
It adopted a complex offshore structure, with headquarters in the Netherlands Antilles; a main subsidiary in the Netherlands; and a variety of subsidiaries in the U.S., Barbados, Venezuela and Mexico. That raised the question of where to pay taxes on $25 million in revenue from a contract to supply voting machines for Venezuelan regional elections: the U.S. or a lower-tax jurisdiction.
Smartmatic paid taxes in Barbados, which the company said was proper because one of its international companies signed the deal.
"The taxes due and owed are to Barbados authorities," said Mr. Mugica, who added that the company had consulted legal counsel and accounting firms on the issue.
Mr. Mugica said the company hasn't thus far been harmed by publicity about the probes. Customers "welcome the fact" that the company is trying to clear up allegations concerning its actions, he said.

Smartmatic denies tax, bribery allegations

http://www.miami.com/mld/miamiherald/news/16145697.htm?template=contentModules/printstory.jsp


Posted on Sat, Dec. 02, 2006
VOTING MACHINES

A Boca Raton company owned by Venezuelans denied allegations it evaded U.S. taxes and paid a bribe to secure a contract in Venezuela to supply electronic voting machines.
BY ALFONSO CHARDY AND JAY WEAVER
achardy@MiamiHerald.com
Smartmatic, an international company with offices in Boca Raton, has contacted the Justice Department to deny allegations that its Venezuelan owners paid a bribe to secure a $91 million contract to supply electronic voting machines in Venezuela, an attorney for the firm said Friday.
''We have informally told the Justice Department that there is no basis for these allegations,'' said Jeffrey Bialos, a Washington, D.C. attorney retained by Smartmatic.
He said Justice officials told the company this fall that it was not the target of a criminal investigation, nor has it received any subpoenas.
The company, incorporated in Delaware, also denied allegations that it failed to pay U.S. income taxes.
Smartmatic's denials mark yet another chapter in the convoluted saga of the Boca Raton firm that last year bought Sequoia Voting Systems of Oakland, Calif., one of the nation's leading suppliers of electronic voting machines. Sequoia machines operate in Washington, D.C. and 16 states, including four counties in Florida: Palm Beach, Indian River, Hillsborough and Pinellas. Smartmatic machines will be used in Sunday's presidential election in Venezuela.
Smartmatic also is being investigated by a Treasury-led panel over whether the government of Venezuelan President Hugo Chávez, increasingly at odds with President Bush, is a secret business partner. Smartmatic has denied any link to the Chávez government.
In another development, Rep. Carolyn Maloney, D-N.Y., who helped spark the Smartmatic probe by the Treasury-led Committee on Foreign Investment in the United States, sent a letter Thursday to Treasury Secretary Henry Paulson Jr. to urge his agency to publicize its findings as soon as the review is completed.
The Wall Street Journal reported Friday that the Justice Department has been probing Smartmatic for possible violations of the Foreign Corrupt Practices Act and possible tax evasion. A Justice Department spokesman on Friday refused to comment.
El Nuevo Herald reported Thursday that agents from the Internal Revenue Service and the Federal Bureau of Investigation are investigating allegations involving tax evasion, an excessive commission to a lobbyist in Caracas and alleged death threats by Smartmatic President Antonio Mugica.
In a statement sent to El Nuevo Herald, a copy of which the company sent Friday to The Miami Herald, Smartmatic said Mugica ``has never threatened any employee.''
The statement said the company has concluded that the allegations came from two former employees who ``appear to be acting in a manner inconsistent with their separation and confidentiality agreements.''
Bialos said Smartmatic sent the ex-employees -- a chief financial officer and comptroller -- ''cease and desist'' letters, reminding them of the confidential nature of their ''voluntary termination'' agreements. He said Smartmatic would take legal action, if necessary, but was not attempting to stop them from talking with authorities.
''The company's policy is one of full and open disclosure,'' Bialos said.
Smartmatic raised suspicions among Chávez's critics after The Miami Herald revealed in May 2004 that two of its main owners, Mugica and Alfredo Anzola, also owned Bizta Corp. -- a small software company in Caracas in which the Venezuelan government had a 28 percent ownership stake.
The disclosure sparked concern among Chávez's political opponents because Bizta, Smartmatic and Venezuelan telephone giant CANTV had won the $91 million contract to supply electronic voting machines before the 2004 referendum that Chávez won. Just before the referendum took place, Bizta announced it would buy back the government shares.
Concern resurfaced after Smartmatic acquired Sequoia last year and Maloney asked the Treasury-led group to investigate. The Miami Herald reported in October that the interagency panel had begun a full-fledged investigation into whether the Chávez government played a behind-the-scenes role in Smartmatic. Smartmatic later confirmed that it had ''voluntarily submitted'' to the review.
Brookly McLaughlin, a Treasury spokeswoman, said Friday there was nothing new to report on the investigation.
The panel determines whether a particular foreign investment ''threatens to impair the national security of the United States.'' The panel has an initial 30 days to review a transaction but can extend the probe 45 more days if at least one member of the committee determines that a particular investment threatens to impair national security. Though no one would say whether the probe is now in the 45-day stage, all indications are that it is. The Miami Herald reported on the original review in July.
According to procedures, the panel can recommend that the president suspend or prohibit the investment in question or offer another recommendation or none at all.
El Nuevo Herald said Thursday that federal investigators were reviewing Smartmatic payments to Morris Loyo, a retired Venezuelan air force captain with ''ample connections'' to the Chávez government, as commissions for helping to obtain the voting machine contract.
Smartmatic confirmed employing Loyo ''as a lobbyist/salesperson and independent contractor to assist in securing election contracts in Venezuela'' but would not say how much he was paid.

REP. MALONEY: Treasury Urged to Make Public the Results of CFIUS Investigation of Smartmatic

Press Release
For Immediate Release
December 01, 2006
Contact: Afshin Mohamadi
202-225-7944

Treasury Urged to Make Public the Results of CFIUS Investigation of Smartmatic

Rep. Maloney cites need to reassure public about U.S. voting system

WASHINGTON, DC – The Member of Congress who first highlighted the need for an investigation of a deal involving voting machine manufacturer Smartmatic is urging the Department of Treasury to make the results of the investigation public when they are finalized (letter to Treasury). Smartmatic, a company with Venezuelan roots, announced shortly before November’s elections that it was indeed undergoing a Committee on Foreign Investment in the United States investigation related to its purchase of Sequoia Voting Systems in 2005.
Rep. Carolyn Maloney (NY-14) wrote this week to Treasury Secretary Henry Paulson to point out the public unease about electronic voting, due to numerous glitches on Election Day and press stories about the Smartmatic investigation. It has also been reported this week that Smartmatic is the subject of an ongoing Department of Justice investigation into the possibility that the company bribed the Venezuelan government for contracts and may have committed tax fraud.
CFIUS investigations can result in no action if the Committee finds no potential problems, a presidentially-mandated break up of the deal if the Committee has serious concerns, or various levels of mitigation if the Committee believes that there are some issues that need to be addressed. Maloney says that making public the results of the CFIUS investigation would boost public confidence in the government’s awareness of the American voting system.
“Let’s face it, after all of the glitches and disturbing stories we see each Election Day, electronic voting has become synonymous with anxiety and uncertainty,” said Maloney. “The best way our government can reassure the American people that it has total awareness and control of our voting machines is to publicize the steps it is taking to ensure the integrity of our voting system.
“The Smartmatic purchase of Sequoia may well get a clean bill of health, and for the integrity of recent elections, I hope it does. There are many possible outcomes, from an approval to a presidentially-mandated divestiture to a mitigation agreement addressing certain issues. No matter what, the public should be alerted when this case is put to bed and informed about how it was resolved. This is especially true in light of the news that Smartmatic is also the subject of a separate government investigation related to bribery and tax fraud charges. I hope Smartmatic will release the results voluntarily, and if it doesn’t, I hope the Treasury will prod them to do it.”
Background
In May, Maloney first raised questions about Smartmatic with then-Treasury Secretary Jack Snow, inquiring whether the deal for Sequoia had undergone a CFIUS investigation (http://maloney.house.gov/index.php?option=com_content&task=view&id=1095&Itemid=61).
In July, the Treasury acknowledged that it had initially contacted Smartmatic, although a CFIUS investigation was not underway at the time. In early October, Maloney wrote to Paulson to apprise him of the lingering questions surrounding Smartmatic (http://maloney.house.gov/documents/financial/acquisitions/20061006ElectionsCFIUS_paulson.pdf).
In late October, Smartmatic announced that it was undergoing a CFIUS investigation (http://maloney.house.gov/index.php?option=com_content&task=view&id=1225&Itemid=61).