US authorities have taken the unusual step of ordering Huawei to clear the acquisition of a domestic start-up, despite the deal closing in May.
Security officials at the Pentagon believe the purchase of 3Leaf should have been cleared by the Committee on Foreign Investment in the US (Cfius), which assesses the national security implications of acquisitions by overseas firms.
Huawei paid $2 million for 3Leaf’s staff and IP, but didn’t seek approval because the deal didn’t cover all of the start-up’s assets WSJ.com reports.
3Leaf is a Bay area startup whose technology combines servers together to allow them to scale.
The committee could order Huawei to sell 3Leaf or place restrictions on its use of the US firm’s technology if it finds the deal compromises national security, WSJ said.
Security fears over Huawei’s links to the PLA have hampered the Chinese vendor’s efforts to crack the US market. It has repeatedly denied any military links beyond the fact that CEO and co-founder Ren Zhengfei is a former PLA officer.
The vendor has hired lobbyists in Washington to help win government backing for its equipment, but has yet to win a major contract with any tier-one carriers in the country.
Rival ZTE has been similarly stymied by security concerns in the US.
The firms were excluded from Sprint Nextel’s $7 billion 4G equipment tender earlier this month, despite submitting the lowest bids.