Waldorf sale to Chinese risks US review over spying concerns

Hilton Worldwide is selling the Waldorf Astoria New York to Chinese insurance company Anbang Insurance Group Co for US$1.95b. Photo / AP

For years, high-profile guests at New York City's landmark Waldorf Astoria hotel could be assured their private conversations wouldn't be overheard by anyone - except, perhaps, by US spies.

That may be changing. The 83-year-old art deco luxury hotel, home to the US ambassador to the United Nations, is slated to be sold to a Chinese buyer. The deal is drawing scrutiny from the US government and is likely to spark a national security review to assess potential spying risks.

"There was virtually hardly a room, a suite or a restaurant table or a ballroom that wasn't wired," said Edward Moles, a public affairs director for the hotel during the 1970s and 1980s, who was told that listening devices had been installed throughout the building. "I assumed that it was the US government, some aspect of our government, that put them in and controlled them. At least I hoped so."

With the US and China trading allegations of cyber-espionage, the hotel's ownership change will prompt the US to ensure the privacy of government officials gathering at the hotel, said Joel Brenner, a former inspector general and senior counsel at the National Security Agency.

"It's not a risk of physical harm, it's a risk of surveillance," said Brenner, now a fellow at the Center for International Studies at the Massachusetts Institute of Technology.

'Old rumours'

Hilton Worldwide Holdings, which has agreed to sell the hotel to China's Anbang Insurance Group for $1.95 billion, is "confident there are no national security issues as a result of this transaction," according to a spokesman. A major renovation is planned and Hilton will manage the property for 100 years under terms of the agreement.

"Should we receive any inquiries from a government agency we will continue to fully comply," the spokesman said.

He said it was "impossible to comment on unsupported rumours nearly 40 years old," in reference to Moles' comments about listening devices in the hotel. An email sent to Anbang's media department in Beijing went unanswered.

Physical security

The Waldorf, which has hosted every president since Herbert Hoover and is home to US Ambassador to the UN Samantha Power, has been favoured for its physical security. President Franklin Delano Roosevelt, whose disability from polio was kept from public view, used a secret underground train to discreetly enter and exit the hotel.

According to former government officials and lawyers, the sale to Anbang will probably trigger a review by the Committee on Foreign Investment in the US, a government panel that examines acquisitions of US businesses by foreign buyers to protect national security.

The focus will be electronic access to information being shared or generated on site, said Oliver "Buck" Revell, a former director of operations for the Federal Bureau of Investigation in the 1980s.

"Just getting access to the building allows today's technology to be utilised for covert purposes," said Revell, who founded and heads Revell Group International, a global business and security consulting firm based in Dallas.

Review

The US mission to the UN is reviewing the details of the sale and the company's long-term plans for the facility, said Kurtis Cooper, a spokesman for the mission. Any decision would need to weigh costs, the needs of the US government and possible security concerns, Cooper added.

Security reviews of Chinese investments in US companies typically have centred on transactions involving telecommunications and assets near military facilities.

The Committee on Foreign Investment in the US may want to review the sale because of the Waldorf's high-profile guests, according to Nova Daly, a senior public policy adviser at Wiley Rein LLP and a former Treasury Department official who managed CFIUS reviews.

"Because the agreement calls for major renovations to the hotel, CFIUS will be worried that the Chinese could engage in some form of espionage," Daly said.

CFIUS has broad authority to impose conditions on Anbang if it finds national security risks with the transaction, including possibly restricting foreign access to the hotel, said Anne Salladin, a lawyer at Stroock & Stroock & Lavan LLP and a former Treasury official who worked on CFIUS reviews.

Holly Shulman, a spokeswoman for Treasury, which leads CFIUS, declined to comment on whether the panel is reviewing the sale.

Credibility

Moles, who worked at the Waldorf for about 10 years, said he was worried the hotel could lose its credibility as a "safe place" for dignitaries to discuss sensitive diplomatic issues.

The structure of the hotel, which has 27 public and private elevators, allows for layers of security officers to be posted at the lobby, and the floors of the ambassador's residence and suites used by top officials as well as at the entrance to the units. Two US Marines stand guard at the front door of the ambassador's residence, according to Moles.

Ensuring the security of information exchanged within the hotel's walls is more difficult, said Revell.

Building-control systems that operate functions such as temperature control and elevators are potential conduits for hacking into organisations, said Michael Chipley, president of PMC Group in Centreville, Virginia. They can be used to gain access to other networks and install malware, he said.

The 1,232-room luxury hotel was originally built in 1893 by William Waldorf Astor and relocated from its original site on 33rd Street to Park Avenue in 1931. The spacious Presidential Suite, which starts at $1,999 a night, has hosted guests over the years including the Soviet Union's Nikita Khrushchev and France's Charles de Gaulle.

The suite features furniture donated by US presidents, including a wicker-backed rocking chair from John F. Kennedy and a wooden desk with carved eagle-claw feet from Dwight Eisenhower.

Chinese buyers are expanding their US property investments. In 2011, the family of Hong Kong billionaire Cheng Yu-Tung purchased Manhattan's The Carlyle. Last year, the family of Zhang Xin, the billionaire co-founder of Soho China, bought a stake in the General Motors Building.

"The real question isn't who owns the facility, but who operates it," Brenner, the former National Security Agency counsel, said about security at the Waldorf. "If a foreign owner were securely isolated from operations, then I could imagine that the transaction might be permitted."

- Bloomberg