The federal government is investigating the takeover last year of a leading American manufacturer of electronic voting systems by a small software company that has been linked to the leftist government of President Hugo Chavez of Venezuela.
The federal inquiry is focusing on the Venezuelan owners of the software company, the Smartmatic Corp., and is trying to determine whether the government in Caracas has any 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 American ports this year.
The committee's formal inquiry into Smartmatic and its subsidiary, Sequoia Voting Systems of Oakland, Calif., was first reported yesterday in The Miami Herald.
Officials of both Smartmatic and the Venezuelan government strongly denied yesterday that Chavez's administration, which has been bitterly at odds with Washington, 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 last night.
But Smartmatic was a little-known firm with no experience in voting technology before it was chosen by the Venezuelan authorities to replace the country's elections machinery ahead of a referendum that confirmed Chavez 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 had previously advised Chavez 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 $120 million from its first three contracts with Venezuela, Smartmatic then bought the much larger and more established Sequoia Voting Systems, which now has voting equipment installed in 17 states and the District of Columbia.
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 role of the young Venezuelan engineers who founded Smartmatic has 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 B. Maloney, a New York Democrat, 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 in a telephone interview yesterday. "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 even if the Chavez government was some kind of secret partner in the company, it would try to influence elections in the United States. 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, referencing to discussions that were first disclosed in July. "It is important that the process is conducted in a professional and nonpolitical manner."
Concerns about possible ties between the owners of Smartmatic and the Chavez government have been known to U.S. officials since before the 2004 referendum.