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For most battered companies struggling to climb back from bankruptcy, the biggest challenges are appeasing creditors and selling a judge on a viable plan for recovery. But telecommunications giant Global Crossing Ltd. faces a separate, steeper hurdle: It has to persuade a secretive U.S. regulatory body that the company’s reorganization plan isn’t a threat to national security. Indeed, Global Crossing’s hopes of emerging from Chapter 11 could be dashed by U.S. officials who are questioning whether the company’s proposed sale to two foreign investors poses security risks. At issue: Global’s planet-circling fiber optic network, which is used by government agencies in the United States and other countries, and by major business interests worldwide. The question of the company’s fate could ultimately land on the desk of President George W. Bush — and force the White House to make a decision with international political implications. With so much at stake, Global and its would-be investors have mobilized top-tier trade and telecom lawyers and lobbyists to persuade an array of U.S. officials to sign off on the deal. Advisers working on the matter include Covington & Burling; Skadden, Arps, Slate, Meagher & Flom; and consulting firm Kissinger McLarty Associates. The story of the campaign to secure U.S. approval of the Global Crossing sale offers a look inside an obscure regulatory procedure to inspect major business deals involving foreign investment. To those familiar with it, it’s called the CFIUS process. To most everyone else, it’s a big unknown. NATIONAL SECURITY QUESTION The Global Crossing negotiations with the Committee on Foreign Investment in the United States, or CFIUS, started last summer, when the deal was first announced, according to sources with knowledge of the discussions. But, these sources say, key U.S. officials, particularly at the Federal Bureau of Investigation, remain strongly opposed to the deal — despite the efforts of Global’s advisers and at least one key U.S. ally. Representatives of the British government, which relies heavily on Global Crossing’s network, recently told the company that they wouldn’t thwart the transaction, and have been urging top-level U.S. officials to do the same, according to a British official in London. In recent weeks, Global’s advisers have sought to blunt U.S. security concerns by offering to seal off the company’s U.S. network within a “secure subsidiary” controlled by people with national security clearance. While nominally headquartered in Bermuda, Global’s base of operations is in the United States, where it operates a roughly 20,000-mile system of fiber optic cables. On Feb. 7, Global submitted a 36-page document spelling out the technical details of that proposed plan to CFIUS, according to sources close to the negotiations. The regulatory committee could signal as early as today whether it will approve the deal, sources close to the process say. If CFIUS doesn’t approve it before Feb. 24, a statutory deadline, President Bush will be forced to decide the matter unless the parties withdraw their application. ‘BLACK BOX’ Under a 1998 federal law, CFIUS, which now counts 11 representatives from several executive branch agencies as members, is charged with scrutinizing deals that mingle foreign investors and national security concerns. The CFIUS process unfolds in near-total secrecy. The committee is formally composed of the secretaries of state, commerce, defense and treasury, along with the attorney general, the president’s national security adviser, and the U.S. trade representative, among others. But beyond the identity of its members and a basic outline of its procedures, CFIUS releases to the public virtually no information about its activities. “CFIUS is a black box,” says one former State Department official who now advises companies facing the committee. Indeed, many CFIUS member agencies would not even confirm that the Global Crossing deal is under evaluation, although the parties to the deal have themselves disclosed that fact. Details of the proposed transaction have been public for months. Global’s would-be investors are Hong Kong-based conglomerate Hutchison Whampoa Ltd. and Singapore Technology Telemedia Pte Ltd., a phone company controlled by the government of Singapore. Last August, they agreed to pay $250 million — $125 million each — for a combined 61.5 percent stake in Global Crossing. The sale of control is viewed as crucial to Global Crossing’s plan to reorganize and avoid liquidation. The sale has won approval from U.S. Bankruptcy Judge Robert Gerber of New York, who is overseeing Global’s bankruptcy, and from regulators in the United Kingdom and the European Union, where Global also operates. But within the U.S. government, the deal still faces stiff resistance from some CFIUS members and could ultimately be blocked, according to several sources close to the intensive negotiations now underway. Global’s advisers on the deal include Covington partners Stuart Eizenstat — a former deputy treasury secretary and onetime ambassador to the EU — and Mark Plotkin, a technology specialist, along with special counsel David Marchick, who represented the State Department on CFIUS matters as a deputy assistant secretary. Global has also called in Ivan Schlager, a top lawyer-lobbyist and partner in the D.C. office of Skadden, Arps, along with Thomas “Mack” McLarty III and Nelson Cunningham, from D.C.-based Kissinger McLarty Associates. McLarty served as President Bill Clinton’s chief of staff. Cunningham served as a lawyer in the Clinton White House and as an adviser to Clinton on Latin America. HARD LINE Sources close to the negotiations say officials within the FBI and the Department of Defense have offered the toughest opposition to the transaction thus far. Their stated reason: concerns about possible ties between Hutchison Whampoa and the Chinese government. According to the same sources, those officials have not yet spelled out the basis for their concerns. Singapore’s role in the deal appears to be noncontroversial, sources close to the discussions say. A spokesman for the Treasury Department, which chairs CFIUS, declined to comment on any aspect of the committee’s work. At Defense, Assistant Secretary John Stenbit, who advises Secretary Donald Rumsfeld on communications and intelligence policy issues, declined through a spokesman to comment on the Global Crossing sale. FBI Deputy General Counsel Patrick Kelley, who is also involved in the CFIUS review of the Global deal, declined to comment. A spokesman for Hutchison also declined to comment. Hutchison has retained W. Clark McFaddin II, a D.C. partner and trade expert at Dewey Ballantine, to lobby for the deal, according to a congressional lobbying report filed last August. A Global Crossing spokeswoman declined to comment beyond a prepared statement: “We continue to cooperate with regulatory authorities in completing the approval requirements to consummate the transaction with Hutchison Telecommunications and Singapore Technologies Telemedia, and we are pleased with the pace of progress thus far.” The FBI has resisted foreign acquisitions of telecommunications assets in the United States in the past. In 2000, for example, the bureau initially balked at Deutsche Telekom’s bid to acquire Bellevue, Wash.-based VoiceStream Wireless Corp. At the time, the German government owned a majority of Deutsche Telekom’s shares. That proposed deal also drew fierce opposition from Sen. Ernest Hollings, D-S.C., who railed against it at a September 2000 Senate hearing. In his testimony at the hearing, Larry Parkinson, then the FBI’s general counsel, warned that the bureau’s ability to conduct electronic surveillance could be compromised. “Even where the foreign entity controlling a U.S. communications network is privately held,” Parkinson added, “there is cause for concern that the foreign affiliated carrier may be subject to the influence and directives of the foreign government or others to compromise U.S. investigations and carry out … intelligence efforts against the U.S.” The VoiceStream sale was ultimately approved, but only after strenuous efforts by Deutsche Telekom’s advisers, including lawyers from Wilmer, Cutler & Pickering, succeeded in persuading the FBI that its ability to conduct electronic surveillance would not be hampered. DEADLINE LOOMS For Global, Hutchison and Singapore, the clock is now ticking. Under the so-called Exon-Florio provision of a 1988 federal law, CFIUS has 30 days to review Global’s formal application for approval — known as a “notice.” If the deal fails to win the committee’s approval within that 30-day period, then by law CFIUS must pursue an investigation and report its findings to President Bush. Ultimately, the president must decide whether to approve or reject any deal that undergoes a CFIUS investigation. In all, the entire process must be completed within 90 days. Lawyers who have guided companies through the CFIUS process say that as a practical matter, if a deal isn’t approved by CFIUS within the 30-day review window, it’s chances of surviving an investigation, and then a presidential determination, are significantly reduced. To some extent, CFIUS experts say, that’s because the parties in a deal that’s headed for CFIUS review don’t even file a formal notice until they’ve negotiated with members of the committee and determined that the deal will be approved. In many CFIUS cases, the application itself and the subsequent “review” are formalities. In most cases, says Wilmer Cutler D.C. partner and CFIUS expert John Harwood II, “it will be virtually a done deal before you file it.” In fact, very few deals have been subjected to a CFIUS investigation, according to a recent report on the CFIUS process from the General Accounting Office. The GAO report, released on Sept. 12, 2002, found that of 320 deals “notified to the Committee” between 1997 and 2001, four were investigated, and only one was blocked by the president. Experts say those numbers don’t reveal a laissez-faire approach to national security. Rather, the experts suggest, the numbers reflect the fact that companies who confront the prospect of a CFIUS investigation typically withdraw their applications and either call off their transactions or significantly restructure them. Global Crossing submitted its formal notice to CFIUS on Jan. 24, according to sources with knowledge of the filing. That means CFIUS must complete its review by Feb. 24 — or the deal will face an investigation and, ultimately, a decision from a president who faces a war in Iraq and terrorist threats at home. Sources close to the process say the White House has signaled that it wants CFIUS, not President Bush, to resolve the issue. Calls to the White House were referred to the Office of Science and Technology Policy, which did not reply to a request for comment. According to sources close to the discussions, some of the government participants appear receptive to Global’s latest plan, under which the company — and its would-be investors — would agree to wall off its U.S. operations within a separate subsidiary. But at a Feb. 11 CFIUS meeting, the members were still unable to reach an agreement, sources familiar with the meeting recount. Another meeting, which is expected to be chaired by Deputy Treasury Secretary Kenneth Dam and attended by other officials at the deputy secretary level, is slated for today. Some CFIUS experts predict that the pressure of geopolitics could very well scuttle the deal. “There has long been a dichotomy between security interests and open investment interests” in the CFIUS process, observes Harris, Wiltshire & Grannis of counsel Cecil Hunt, who helped draft the rules that govern the committee. “At the moment, we’re certainly in a climate in which it behooves everyone in the government to be very careful” about security issues, Hunt says. “But you also have to be very careful to guard against reflexive reactions.”

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