Obama AG Pick Lobbied for Dicey Telco Deal
Eric Holder hired to close sale of bankrupt firm amid security fears.
November 21, 2008— -- President-elect Barack Obama's pick for Attorney General registered to lobby in 2002 for a U.S. firm whose proposed sale to foreign buyers was stalled by U.S. officials who feared a national security risk.
After months of negotiations – and over $1 million in fees for the efforts of Eric Holder and four other lobbyists from his firm – the sale of the company, Global Crossing Ltd., went through.
In 2002, national security officials balked at a proposed sale of the bankrupt telecommunications firm Global Crossing to two Asian companies: a Hong Kong firm they reportedly believed to have ties to the Chinese government, and a Singapore firm part-owned by the government of Singapore.
Officials at the Pentagon and the Justice Department believed that foreign control of Global Crossing's global fiber optic network could give other governments access to U.S. data which would travel along those lines or be kept in the company's databases, documents indicate. Those officials also thought the sale could make it harder for U.S. intelligence and law enforcement to secretly tap those lines for intelligence operations or criminal investigations.
Holder, who was publicly named Monday as Obama's likely pick for the top Justice Department post, did not reply to questions for this story. A spokesman for Obama declined to comment. Global Crossing did not respond to inquiries.
All but one of the lawyers and lobbyists involved in the push for the deal did not respond to inquiries, or would not discuss Holder's contribution. One said, on condition of anonymity, "I recall he had a very, very minor role."
Global Crossing became a household name in 2002 after its spectacular collapse. The Securities and Exchange Commission investigated the firm, eventually fining three former officials hundreds of thousands of dollars. The company was sued by investors and former employers who lost money and pensions in the collapse; in 2005 the company settled with the litigants for $325 million. Its former CEO, Gary Winnick, said through his lawyer at the time that he "does feel badly about all those who were hurt by Global Crossing's collapse."
Holder and a handful of colleagues from the Washington, D.C., law firm Covington and Burling registered to lobby for Global Crossing in November of 2002, a week after a powerful panel of top U.S. officials announced it would inspect the proposed sale.
That panel, known as the Committee on Foreign Investment in the United States, reviews sensitive deals which could result in foreign ownership of U.S. infrastructure. Holder was familiar with the panel, having worked with CFIUS as a Deputy Attorney General to protect U.S. interests in earlier international acquisitions.
Lobby registration forms filed by his firm show that Holder and his colleagues were paid to "advise and represent Global Crossing on CFIUS process and issues," including the negotiation of a security agreement that would allow a deal to go through.
The five men were in contact with the Departments of Justice, State, Defense, Treasury and Commerce on behalf of Global Crossing, as well as the White House, the filings show. The heads of those departments, and representatives from the White House, sit on CFIUS.
Their push for the initial proposed merger failed. CFIUS rejected the deal in March 2003, following a reportedly contentious meeting with representatives from Global Crossing and its would-be buyers, Hong Kong-based Hutchison Whampoa and Singapore Technologies Telemedia. Hutchison Whampoa denied the Chinese government had any influence over its business.
The rejection by CFIUS was surprising if only because it is a rare phenomenon – CFIUS has blocked only a handful of deals out of hundreds that are brought before it for review.
Months later, CFIUS approved an amended merger that came with strict requirements. The Hong Kong firm removed itself from the sale, and Global Crossing and ST Telemedia hammered out an agreement with CFIUS "to address the U.S. Government's national security and law enforcement concerns," as Global Crossing described it in a public filing to the Securities and Exchange Commission later.
The company has said that its operations "were generally consistent" with the CFIUS agreement's terms even before it signed the agreement.
But to fully comply with the new arrangement, the company wrote in SEC filings, it made "improvements" to "information storage and management, traffic routing and management, physical, logical, and network security arrangements, personnel screening and training, and other matters."
The 35-page agreement barred the new owners from storing outside the United States information or communications on U.S. persons, barred the company from routing domestic U.S. calls through international pathways under most circumstances, and said it could not share such information with foreign governments without the approval of the Justice Department or a federal judge.
It also gave the company tough rules on reporting contact with foreign executives, screening prospective employees, and opening their facilities for investigation by U.S. personnel.
The document was similar in many respects to a 2001 agreement reached by U.S. telecom firm Voicestream, its German buyer, and federal officials, including Holder.
Holder, who led the process of vetting possible vice-presidential picks for Obama, has faced criticism for his role in then-President Bill Clinton's pardoning of Marc Rich, a fugitive financier and major donor to Clinton's campaigns.
When Holder's likely nomination was reported this week, it was warmly received by Republicans and Democrats. "I respect the man, and I intend to vote for him," said conservative Sen. Orrin Hatch, R-Utah. Senate Judiciary Chairman Patrick J. Leahy, D-Vt., said in a statement Thursday Holder "would make an outstanding and historic nominee." If nominated and approved by the Senate, Holder would be the nation's first African American Attorney General.