tv The Communicators Bryan Bender Cory Bennett CSPAN June 30, 2018 6:30pm-7:02pm EDT
in 1979, c-span was created as a public service by america's cable television companies. and today we continue to bring you unfiltered coverage of congress. the white house, the supreme court, and public policy events in washington, d.c. and around the country. c-span is brought to you by your cable or satellite rovider. peter: cory bennett of politico has it developed world wide? cory: you can straight up purchase technology and sign a contract with a company in the u.s. but, perhaps, one of the more interesting and less understood ways to acquire sensitive technology is through an investment in that company. it's not a very traditional way we think about acquiring something. we think about a very old
school model of mergers and acquisitions where, you know, big steal buys -- big steel buys little steel. today you can have some sort of insight into sensitive technology by, say, an early stage investment in a company that is not yet proven. you can be a seed funder when it is still in a -- in the a series of funding. you can develop a joint venture, a joint partnership. these can be several ways you can have some degree of access to this technology without necessarily gaining the insight or triggering some sort of oversight mechanism. there are these new ways, which is one of the things we were looking at that people can get access to the sensitive technology. peter: bryan bender the name of your story in politico is how china acquires the crown jewels of u.s. technology. what is going on? bryan: what we looked at was an organization, government body called the committee on foreign investment in the united states.
terrible acronym. s cory and i sometimes call it , from greek mythology. it was established in the 1970's and has players from a whole bunch of executive agencies -- the pentagon, state department, commerce department, etcetera, etcetera, the intelligence community. it was set up basically at a time when foreign companies were starting to acquire american firms. mostly at that point in the energy sector. and there was a concern if an oish nation or a company in an asjha -- arab nation wants to buy an american company doesn't it potentially have national security implication fst they control our energy supply? it was set up in the 1970's in he industrial age if you will. much like we have today. in those days it was pretty clear. company a overseas wants to buy
company b in the united states. maybe the committee on foreign investment should look at that and see if there are potential concerns. fast forward to today in the information age. it's a whole lot more complicated if a foreign company or as cory said an investor wants to get their hands on, if not the company, itself in the united states, some of the technology within it. so what we looked at is how not very well is equipped to deal with the sophisticated new transactions that also involve often not steel, not gas, but information. an example was a chinese company last year wanted to buy money gram, which is this money transfer company in the united states. you know, not unlike western union. normally you wouldn't think that would have a national security implication. you know, why does that matter? if you're an american who uses
money gram you provide tons of personal information -- bank accounts, work history, money gram is also on virtually every military base in the united states. soldiers use it, information to send money home. so there was a real concern there that, ok. maybe we don't want china to own that company because then they high school own, again, that way you would normally consider national security information but information products, services, that could be used potentially against the united states. peter: and in your story you quote representative robert pittinger, republican of north carolina. any chinese related company that is part of our supply hain is a concern to me. bryan: he is i would say probably on the more extreme end of raising concerns about this issue. i wouldn't say everyone would agree with that sentiment. certainly there are supply chain concerns and the concerns
are economic, military, and also espionage. the thought that national security or the warning that national security leaders have been putting out there is that any time a chinese investor with a potential link to the chinese government has some sort of foot into our supply chain, somewhere along the way as we're sourcing our technology to build our products, to build robotics, to build artificial intelligence, to build space technology, the things that are really powering the military, powering the government, if the chinese government has some insight into what that technology is, not only could they potentially plant a bug, an espionage bug, monitor american communications, but that also allows them to adopt the technology themselves, which could give them a military edge, a technological edge, an economic edge in the global marketplace. and so those are the concerns that people have been raising. but to be clear, representative pittinger, while raising what
are agreed to be very legitimate issues by people across the ideological spectrum, there is some thought from investors, specifically out in silicon valley, other tech hubs, that we shouldn't be eschewing chinese investment. they put billions of dollars into our most cutting edge technologies every year, and there is some fear that by demonizing these type of investments we might over react. and we might freeze and create a chilling effect on the money helping silicon valley flourish. that is one of the edges that america has in the global marketplace today are these type of cutting edge next generation technologies. so while, certainly, you know, his sentiment reflects a legitimate concern by many people, it is not necessarily the only -- people are not uniform in their concern. there is some worry it could create an over reaction. peter: well, you quote, bryan bender, a treasury department
official who oversees the committee. any time we see a company that has lots of data on americans, healthcare, personal, financial data, that is a vulnerability. but why? bryan: well, i mean, you have to remember that, you know, the chinese economy is government controlled. i mean, there are private companies in china for sure. but there is a relationship between private companies in china and the communist government of china that is very different from our model. and i think the concern is that, you know, within china the government there keeps all kinds of information on its people -- personal information, financial information. potentially healthcare information. if a chinese company, with close ties to the chinese government, had access to millions of americans' health records or banking records, that information could be used, for example, for espionage
purposes. if they know who works in the state department and owes a lot of money to the banks or is deep in debt, has four kids about to go to college, maybe that person is a better target for an espionage operation. so there is this growing concern that information as we all know is power. and so it's something that when the committee was established in the 1970's was never conceived of. as i said before, energy companies, gas companies, steel companies. obviously a defense contractor. that would be a clear alarm bell. we don't want the chinese to control the company like that. but now it's a much broader range of things that if in the rong hands could be misused. cory: i would note we're talking about theoretical concerns from an espionage
perspective. there have been cases of individuals being arrested in the u.s. who are charged with -- targeted by chinese spies because they knew these people were in dire financial situations and they have been charged with passing on sensitive american secrets to these chinese individuals or the beijing government. so there are tangible cases related to this. it is not purely a theoretical concern at this point. peter: is the focus on china when it comes to obtaining american technology? bryan: the focus from whom? peter: our government, the committee? cory: i would say so. it is notable that currently we mentioned congressman pittinger. he is working on legislation that it seems that it will come to fruition and will actually pass that would reform the committee. notable that that bill does not say china. but it is widely believed that that is what it is targeting, the majority of the work that the committee does, not the
majority, a large pluralityy of the work they do is focused on china. if the bill were to embolden the committee more it would allow them to focus more on china. the white house as well in addition to this legislation is trying to move with specific investment restrictions targeting china very explicitly using an emergency powers provision to address national security. so that is very explicit. that is about china. peter: well, from your story again, cory bennett, if you could help unpack this, a politico review of 185 tech start-ups with chinese investors found just over 5% had received government contracts, loans, or grants, ranging from a few thousand dollars to several million dollars. often the contracts simply involved research, renewable energy for the energy department, electronics, and communications equipment for the pentagon, space technology for nasa. others ordered lab equipment
for the commerce department or machine tools for the military. let's go back to that 5% of these tech start-ups getting u.s. government support. cory: yeah. that was one of the seeds of this project was the thought that potentially the u.s. government was giving out contracts to technology companies that had chinese money behind them. because everyone told us that would raise significant concerns. as you can tell from that passage, we didn't necessarily find a smoking gun of that nature but we did find that there were companies that had had u.s. government contracts, even if it was not necessarily at the time that they were receiving money from chinese investors but it does raise the specter that there is some cross pollination here. and from talking to cyber security experts, they say that that is certainly something the chinese government would want to do. they haven't in -- they have an intense interest in knowing what the u.s. government is investing in, what they're interested in contracting out to do.
because these early stage companies are going to be the technology that powers the military and the government 10 to 15 years from now. and if china can get a jump-start on that and know what the u.s. is thinking about for 10 years down the line, that can give them an edge. and according to some officials we talked to, they believe that could cost the u.s. lives in a potential military conflict down the line. so that was one thing we wanted to look at. as you can see, we didn't necessarily find a robust example. this isn't happening all the time. but it does seem that the potential exists. peter: and it is sometimes hard to find ownership of a company that wants to invest in a startup. is that correct? bryan: yeah. and i think one of the intents of some of this legislation that is going through congress wanting to n is empower this body -- more
resources, more people, more investigators, more means to sort of trigger a review process, maybe in an area where they're not really paying attention. and one of the challenges they've had in dealing with a lot of these chinese cases -- and that is another thing we've found. the committee is under water. it is overwhelmed by the number of international transactions that are being proposed in a whole host of industries. they just don't have enough people. they don't have enough hours in the day to do their due diligence. one of those big challenges is ownership. for example, we found a case where there was a semiconductor company in california that went bankrupt. an american semiconductor company. peter: what is its name? bryan: this was atop tech, knock off from silicon valley. had financial problems. went bankrupt. like in a lot of cases, its assets were being sold off by a
bankruptcy court in this case in delaware. into the bankruptcy court came chinese american who wanted to make a bid for those assets and it turned out if you peeled back several layers, the company that he was working for was owned by a chinese national, a steel magnate in china. that was a case where it was not that difficult if you did your research to figure out, ok. there is a connection here potentially. but that was a case that never got raised to committee at all because they never looked at bankruptcy court. that is another example of a new means by which a foreign player could come in and the bankruptcy judge isn't aware, you know, doesn't do the research. there is very hill way they could know -- there is very little way they could know who really owns the company and is the party behind it. that is the case in a lot of examples we found where the
first look is not a very easy way to figure out who really is behind this? where does the money come from? who are these investors, therese sort of nameless, faceless people? that requires, like i said, due diligence and shoe leather . most reporting investigation it just doesn't have the people to do it. peter: bryan bender what kind of technology would this gentleman and, perhaps, the chinese government, have acquired? bryan: this case did go through. the assets were sold to this company called avatar, which is backed by a chinese individual who has a lot of money and mostly up until now was in the steel business. and that company -- the company that bought atop tech in
california was a leading designer of micro chips that could be used in lots of things from electronics to missiles to computers, mobile phones. and so here is an example where a chinese company with, clearly, some ties to the chinese government -- how much we don't really know -- now has access to these, you know, effectively owns this american company. i think that was something that set off some alarms among people who watch these cases, you know, this whole bankruptcy court thing is something we never thought of. and so one of the bills that is going through congress would have -- does have some language in it that would empower the committee and urge them to put more resources toward figuring out, are there more cases lake this in bankruptcy courts that they should be paying attention to because this could be national security implications.
peter: cory bennett, how is the committee funded, where is it staffed, etcetera? cory: it has traditionally been funded and staffed in an ad hoc manner which is i think part of the challenge that they face. there are nine agencies that have to kind of bring their own resources and personnel to bear , and they aren't necessarily able to tell other agencies, hey, can you add five more people to your team, take in a little more money? it is not a single line item as part of a budget request. so it has traditionally varied depending on the time and place and how much each agency wants to put into it at that moment. i spoke to one gentleman who worked with the committee in the 1990's and described the review process as having to pick up some intelligence analysis over here, kind of grab a little economic analysis er here, and you have to piece it together yourself and cajole people into it. and even now with treasury --
treasury leads the process and then with the nane other . encies senior trashary officials told us there are now -- senior treasury officials told us there are maybe 20 or 30 working and some have maybe 10. they told us even with those resources they were not able to take vacations. they're working wall street banker hours. that is one thing the legislation would address. it would change the budget into a single line item so you could request a single number for the ear. and would allow more hiring authority. it has been traditionally pretty ad hoc for the first i believe five years of cfius it only met 10 times. a really very obscure thing
until recently to be honest. peter: so the mid 1970's the committee on foreign investment in the u.s. comes about, a lot of focus on japan and the autos thraw the 1980's. what happened after 9/11? how did sives -- cfius's mission change? cory: congress got interested. 9/11 was described to me by folks who worked with cfius as kind of a seminole -- seminal moment for the committee. its power was expanded quite significantly. there is a tweak in the language that encouraged it to consider as part of the national security imperative critical infrastructure. that's referring to, or excuse me, critical industries, referring to things like banks, hospitals, a water dam. not necessarily something that is traditionally thought of as related to national security but it did give cfius a much more expansive idea of what
they could and should be reviewing. and that was kind of the start of the slow expansion of, well, maybe we need to have cfius cover this and cover this. and now we've moved from critical industries. they would also add critical technologies under this new bill. you can see now so it is not just about the banks and the hospitals. it's about an important component of technology that could be in any company, frankly, any company, and that goes back to the quote you read from the treasury official earlier. any company that has a lot of data and critical technology is now of concern to cfius. it's almost everything in some sense. peter: does cfius have the expertise to cover these myriad cases? bryan: i think most would agree they have the expertise. but as cory said, it's been a very ad hoc process where each agency assigns the people and the resources they think
necessary. if you just look at the number of cases, or the number of transactions proposed that involve a foreign player, there are far too many for them to handle. cory: the investigations have tripled in the last almost decade. bryan: and so i think resources are big part of it. the number of people, the more broad writ if you will to look at different industries and different kinds of transactions that cfius didn't traditionally look at. but, you know, as we tried to point out in the piece as well, i think the challenge here, this is a challenge for congress, is how do you strike a balance between better policing and making sure that we've not giving away the store or somebody is not coming in and taking away the store in terms of futuristic technologies? u know, without stifling the kinds of international trade
and investment that help fuel our economy? i think it's not an easy balance to strike because i think you -- if you go too far you scare away foreign investors who, you know, say, well hey. we'll get so scrutinized and have to file so many pieces of paper for this transaction to go through that it's not worth it. and so this is no doubt that there's a lot of american technology that is getting accessed by foreign companies, particularly chinese companies that we probably want to take a look at because these are technologies that the military relies on -- technologies or companies that, like i said, have a lot of data on americans that we may not want a foreign power to have especially if it's a foreign power that we're sometimes in conflict with. peter: a lot of pushback in silicon valley to this strengthening legislation?
cory: yeah. i think there is a general recognition that something needs to be done, but the details have been quite contested. the fear to go back to the term critical technologies that i mentioned, the fear is that that's too amorphous, kind of a know it when you see it regulation which industry does not love. their fear is that everything, every time they try to interact with a foreign company they're going to be scrutinized. even the potential of selling software overseas. they're fearful that will be scrutinized even though that is already under currently other export controls. and the warning is that cfius, which currently does a couple hundred reviews a year, could jump to thousands of reviews a year. if they're already under staffed to begin with, can we really get cfius to that point where they have the budget and the resources? and there have been some changes to the legislation. industry groups have said they are happy with those tweaks.
i imagine they would probably ultimately be broadly supportive of what is going on but i do know there is serious concern. i talked to one industry group in particular that represents companies like galing, amazon, apple -- google, amazon, apple, and they said it was a top priority for them this year to get the legislation changed in accordance with their concerns. so, in addition to the big tech concerns, you also have the little tech concerns that i alluded to earlier, and bryan just talked about it, where you might drive away early seed investment. the bill would extend the review time for cfius from 30 to 45 days. that could be even longer with challenges and extensions. and a lot of these early stage investment deals are kind of done within a matter of days. if it can't be done within a matter of days, people don't want to do it. so are you -- as one gentleman who has received money to his artificial intelligence company, sky mine, told me, are
we driving a bulldozer toward the rose garden? are we essentially killing the goose that lays the golden egg in america? that has been some of the concern that we've heard. and i imagine we'll continue to hear it. peter: from your article and too many silicon valley deals exist in another world between passive investment and absolute takeover where there is access to information, technical information, there is the ability to influence and potentially corse -- coerce management according to a senior treasury department fficial. bryan: yes. this gets to this increasingly challenging issue of who is behind these companies. who is providing this seed money. obviously, if a chinese national is named to the board of directors of the company, that's pretty clear that that person has an active role or obviously if they're an executive in the company they have an even more active role in managing the day-to-day
operations. hat if that person is just a funder, is back in china and is providing some of the funding. the question that arises is, ok. well, does that financial relationship now give that person access to some of the deep, dark secrets of what that company is working on? does it potentially give that person access to how some of the technology works? it could then potentially be replicated in china by another chinese company. and so the treasury folks that we talked to said that was a real -- that was sort of on the higher list of their concerns because they've been dealing with this growing number of international transactions involving american companies. you know, it is very difficult to know anymore who's got real control, who's got real access, and who doesn't. and that is one of the primary
roles of cfius. if they see a transaction as proposed, company a wants to buy company b, if they don't like something about it, they can go in and negotiate with the parties and say, well, you know you can buy this american company but you have to set up this kind of structure so that part of american company is walled off from your investor. and they've done that in the past. but, you know, the problem is there are so many of these transactions that the question a lot of people we talked to raised, how many are we missing? how many of these things are going on that the u.s. government doesn't know about? peter: cory bennett, we've seen through e.t.e., qualcomm cases, that the trump administration is very interested in this issue. but these -- the way you're writing about are not necessarily name brand, big companies we know about. cory: right. to be clear, these deals are being nixed at a record clip already.
there is awareness of it. i believe by one count i saw at least six in a big tech merger or acquisitions have been nixed during the trump administration alone and that's not counting the steps obama took late in his administration. he actually canceled, there was a chinese investor that was trying to buy the u.s. subsidiary of a ceremonyan semiconductor manufacturer and he took the unprecedented step, essentially, of knicksing that. so, you know, this is something the government is aware of. but they're struggling just to cases th the top level we see in the papers. we're not even getting nah the thousands and thousands of small level investments going on around the country and have not fully addressed the question of to what degree we hould be watching these. peter: you have crowned jewels in quotations. who came up with that?
bryan: that was actually from a report the pentagon put together. which looked at this issue of advanced technology and how to protect it, how to prevent the potential enemies from gaining access to it. and the pentagon concluded, i think in 2016, that basically the u.s. government did not have a comprehensive strategy for dealing particularly with china. because there are so many ways that china is trying to gain access to american technology and know how. and that turned the crown -- that term the crown jewels coined by the pentagon was without a more comprehensive strategy on how to police this, we are facing the real potential that china is going to gobble up a lot of the stuff that we see as our most advanced technology. cory: i think it is funny you've seen chuck schumer pick up on it and he uses the term "family jewels" when he goes on the senate floor and rails against trump for focusing on
tariffs and not this but the term is quite apt and a lot of people do use it. peter: and senator schumer and cornyn figure heavily in your article as does the made in china 2025 strategy by the head of china. this is the article. "how china acquires the crown jewels of u.s. technology." cory bennett and bryan bender are the authors. history unfolds daily. in 19 79, c-span was created as a public service by america's public cable television companies. today, we continue to bring you unfiltered coverage of congress, the white house, the supreme court and public policy events in washington, d.c. and around the country. c-span is brought to you by your cable or satellite provider.
>> c-span's "washington journal," live every day with news and policy issues that impact you. weeklyup sunday morning, standard reporter and syndicated columnist discussed political news of the day. then, corporation laurel miller talks about the u.s. role in afghanistan and the military and political stability of that country. be sure to watch c-span's "washington journal" live at 7:00 a.m. eastern on sunday morning. join the discussion. >> next, a hearing examines the use of shell companies and virtual currencies as ways foreign countries are influencing u.s. elections. witnesses discuss their recommendations involving greater financial transparency and disclosure provision at this event held by a senate judiciary