Government Agency Ill-Equipped To Police American Tech Scooped Up By Chinese, Says Politico Investigation

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Eric Lieberman Deputy Editor
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China has been scooping up some of America’s most prized technology with an ostensibly insufficient amount of oversight from the U.S. government, according to an in-depth investigation Politico published Tuesday.

The inter-government agency known as the Committee on Foreign Investment in the United States (CFIUS) is tasked with scrutinizing foreign investments into U.S. companies — specifically to determine if there are any potential national security consequences. However, it is formally up to American firms to notify CFIUS of a pending foreign investment when they respectively deem necessary. As the amount of companies, especially tech startups, has grown over the years, so too has the agency’s inability to keep up with all of the possible reviews.

“I knew what was critical in 1958 — tanks, airplanes, avionics,” Paul Rosenzweig, who worked with CFIUS while at the Department of Homeland Security under President George W. Bush, told Politico. “Now, truthfully, everything is information. The world is about information, not about things. And that means everything is critical infrastructure. That, in some sense, means CFIUS really should be managing all global trade.”

China’s investment in U.S. tech skyrocketed in 2015 by roughly $7 billion from the year prior, totaling $9.9 billion. While that dipped back down in 2016 to a little over $5 billion, the amount of probes CFIUS conducts has reportedly not been keeping up with that pace.

Bipartisan members of Congress are trying to change that or at least swing the apparent trend of a lack of oversight in the other direction. The Senate Banking Committee approved a bill Tuesday that would grant CFIUS with extended powers to investigate foreign acquisitions of American businesses that could conceivably leave the country’s national security vulnerable in some way. The congressional panel’s official consent comes as President Donald Trump’s administration has been battling with the foreign adversary over tariffs and trade in general. Trump has longed protested China’s pernicious attempts at dominating sectors of the larger tech industry — including through chicanery and other more deceptive means like intellectual property theft.

But Trump even more recently expressed his desire to “get massive Chinese phone company, ZTE, a way to get back into business, fast.” ZTE was fined roughly one billion dollars in March after pleading guilty in federal court to violating U.S. sanctions by illegally selling and distributing American products to Iran. The U.S. Department of Commerce soon after issued a seven-year ban on the sales of ZTE components for lying in a related probe into the international transgressions. Both measures took place after the heads of the CIA, NSA, FBI, the director of national intelligence, and several congressional officials expressed deep-seated concerns with ZTE and Huawei — another massive Chinese tech corporation — because of potential foreign surveillance, among other consternations.

That ban appears to be a huge contributing factor to ZTE’s alleged commercial suffering, but Trump, much to the applause of the Chinese, seems determined to help a menacing company propped up by China — the same foreign foe he so often criticizes. The U.S. and China are close to a final deal that would lift the ZTE ban, Reuters reported Tuesday.

Trump’s justification: “ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S.” Also, Trump is essentially considering the prospective move a favor for Chinese President Xi Jinping.

“As far as ZTE is concerned [Xi] asked me to look into it and I am doing that,” Trump said during a meeting with South Korean President Moon Jae-in, according to The Hill. “And don’t forget for the ones [who] say, ‘Oh, gee, maybe Trump is getting a little bit easy.’ ZTE, we closed it. It wasn’t another administration; it was this administration that closed it.” (RELATED: China Says The US Is ‘A Bully’ Due To Tech Sanctions)

Trump’s proposals are forcing ZTE to pay a fine potentially exceeding $1 billion and upending the whole companies upper echelons — including its board of directors — rather than maintaining the current sanctions.

“The objective was not to put ZTE out of business,” Treasury Secretary Steven Mnuchin said.

But according to several top officials cited in the Politico investigation, the U.S. government should focus on fortifying CFIUS’s capacity to operate more thoroughly so it can better vet Chinese firms — like ZTE, which is currently a key player in the race to full-scale 5G implementation — that may render a significant net detriment for the country as a whole. (RELATED: China Is The ‘Undisputed Leader’ In The Race For 5G, Leaving America In The Dust, Says Analysts)

Senate Majority Whip John Cornyn, for example, said ensuring CFIUS has the resources it needs shouldn’t be difficult.

“For the price of a single B-21 bomber, we can fund an updated CFIUS process and protect our key capabilities for several years,” Cornyn said at a hearing, according to Politico. “That is a down payment on long-term national security.”

“Just imagine if China’s military was stronger, faster and more lethal,” he added. “That is what the future likely holds, unless we act.”

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