Posts Tagged ‘U.S. Government’

How China acquires ‘the crown jewels’ of U.S. technology and European companies

May 22, 2018

Chinese companies continue to be on a shopping spree in Europe and Germany in particular. A fresh study shows that takeovers are usually in line with Beijing’s new industrial strategy where nothing is left to chance.

Chopsticks piercing a €10 banknote (picture-alliance/dpa)

When looking to acquire stakes in German companies, Chinese investors more often than not act in line with their government’s economic agenda, a survey published by the Bertelsmann Foundation showed Tuesday.

Reflecting Beijing’s strategic ambitions of becoming the global leader in a number of key industries, Chinese investors are found to predominantly target German firms which have a lot of technological know-how in the very key sectors that are explicitly mentioned in the Chinese government’s strategic program called “Made in China 2015.”

The author of the study, Cora Jungbluth, said it was Beijing’s explicit policy to turn the world’s second-largest economy from a mere workshop into a global technology leader, with “the acquisition of stakes or complete takeovers of foreign firms being part and parcel of that strategy.”

No accidental choice

The analysis of 175 Chinese investments in German companies between 2014 and 2017 revealed that in two-thirds of all cases stakes were secured in the very key industrial sectors that Beijing said it wanted to boost over the next couple of years.

Most investments were made in German companies offering fuel-saving technology and alternative transmission know-how for the auto industry. Other areas attracting large investments included robotics, energy systems and biomedicine, the study showed.

Formally, most of the Chinese companies buying into German firms were in private hands. But the Bertelsmann Foundation’s Cora Jungbluth said it was unclear to what extent private entrepreneurs were instructed or guided by Beijing in their foreign acquisitions.

Unfair competition?

The survey concluded that Chinese takeovers had so far shown the buyers’ long-term interest in their new assets, but added that there was no level playing field with regard to investments as German and foreign companies in general were still largely barred from investing in key industries in China.

Jungbluth therefore argued that regulators should look harder at the potential long-term impact of Chinese takeovers in Germany, suggesting that authorities should even examine bids for stakes as low as 10-percent — to replace the current policy under which bids are only scrutinized, if they would lead to a Chinese stake in German companies of at least 25 percent.

hg/mm (AFP, dpa)


How China acquires ‘the crown jewels’ of U.S. technology

The U.S. fails to adequately police foreign deals for next-generation software that powers the military and American economic strength.

POLITICO Illustration/Getty Images/iStock

The U.S. government was well aware of China’s aggressive strategy of leveraging private investors to buy up the latest American technology when, early last year, a company called Avatar Integrated Systems showed up at a bankruptcy court in Delaware hoping to buy the California chip-designer ATop Tech.

ATop’s product was potentially groundbreaking — an automated designer capable of making microchips that could power anything from smartphones to high-tech weapons systems. It’s the type of product that a U.S. government report had recently cited as “critical to defense systems and U.S. military strength.” And the source of the money behind the buyer, Avatar, was an eye-opener: Its board chairman and sole officer was a Chinese steel magnate whose Hong Kong-based company was a major shareholder.

Despite those factors, the transaction went through without an assessment by the U.S. government committee that is charged with reviewing acquisitions of sensitive technology by foreign interests.

In fact, a six-month POLITICO investigation found that the Committee on Foreign Investment in the United States, the main vehicle for protecting American technology from foreign governments, rarely polices the various new avenues Chinese nationals use to secure access to American technology, such as bankruptcy courts or the foreign venture capital firms that bankroll U.S. tech startups.

The committee, known by its acronym CFIUS, isn’t required to review any deals, relying instead on outsiders or other government agencies to raise questions about the appropriateness of a proposed merger, acquisition or investment. And even if it had a more formal mandate, the committee lacks the resources to deal with increasingly complex cases, which revolve around lines of code and reams of personal data more than physical infrastructure.

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

As a senior official at the Treasury Department, which oversees CFIUS, put it: “Any time we see a company that has lots of data on Americans — health care, personal financial data — that’s a vulnerability.”

When CFIUS was formed, in the 1970s, the companies safeguarding important technology were so large that any takeover attempt by foreigners would be certain to attract attention. Now, much of the cutting-edge technology in the United States is in the hands of much smaller firms, including Silicon Valley startups that are hungry for cash from investors.

The gap in oversight became a more urgent problem in 2015, when China unveiled its “Made in China 2025” strategy of working with private investors to buy overseas tech firms. A year earlier, Chinese investments in U.S. tech startups had totaled $2.3 billion, according to the economic research firm CB Insights. Such investments immediately skyrocketed to $9.9 billion in 2015. These amounts dipped the following year, as the Obama administration voided a high-profile deal, but analysts say China’s appetite to buy U.S. firms and technology is still strong. In 2017, there were 165 Chinese-backed deals closed with American startups, only 12 percent less than the 2015 peak.

Yet the failure to investigate some forms of Chinese investments in American technology has flown under the radar as President Donald Trump goes tit for tat with Beijing, imposing tariffs meant to punish China for unfair trade practices. Critics noted on Monday that Trump’s tentative agreement to drop his tariff threat in exchange for Chinese pledges to purchase billions of dollars more in American goods avoided any mention of the outdated foreign-investment policies that have alarmed lawmakers across the political spectrum.

On the Senate floor Monday, Minority Leader Chuck Schumer (D-N.Y.) lashed out at Trump’s approach.

“China’s trade negotiators must be laughing themselves all the way back to Beijing,” he said. “They’re playing us for fools — temporary purchase of some goods, while China continues to steal our family jewels, the things that have made America great: the intellectual property, the know-how in the highest end industries. It makes no sense.”

National security specialists insist that such a stealth transfer of technology through China’s investment practices in the United States is a far more serious problem than the tariff dispute — and a problem hiding in plain sight. A recent Pentagon report bluntly declared: “The U.S. does not have a comprehensive policy or the tools to address this massive technology transfer to China.” It went on to warn that Beijing’s acquisition of top-notch American technology is enabling a “strategic competitor to access the crown jewels of U.S. innovation.”

Some congressional leaders concur. Senate Majority Whip John Cornyn (R-Texas) regularly warns his colleagues that China is using private-sector investments to pilfer American technology. China has “weaponized” its investments in America “in order to vacuum up U.S. industrial capabilities from American companies,” Cornyn said at a January hearing. The goal, he added, is “to turn our own technology and know-how against us in an effort to erase our national security advantage.”

Legislation to expand the CFIUS budget and staff has been moving slowly through the halls of Congress amid pushback from Silicon Valley entrepreneurs and business groups. The legislation would give CFIUS new resources to scrutinize bankruptcy purchases and establish stricter scrutiny of start-up investments.

As months passed without any action, and the issue of Chinese investments got overshadowed by tariff fights and feuds between Beijing and the Trump administration, national security experts grew more concerned, fearing that Congress lacked a sense of urgency to police transfers of sensitive technology.

The White House began exploring what more it could do on its own, asking the Treasury Department in late March to offer a list of potential Chinese investment restrictions within 60 days.

Finally, earlier this month, Senate and House leaders announced plans to mark up the bill, starting a process that could lead to passage later this year.

Still, the failure to act more quickly may itself be jeopardizing national security. At a hearing in January, Heath Tarbert, the Treasury Department assistant secretary overseeing CFIUS, testified that allowing foreign countries to invest in U.S. technology without making sufficient background checks “will have a real cost in American lives in any conflict.”

“That is simply unacceptable,” he said.

‘Made in China 2025’

Last October, Chinese President Xi Jinping took the podium before 2,300 Communist Party delegates to deliver his expansive vision for China’s future.

Xi was speaking at the party’s 19th Congress, a summit held every five years to choose the nation’s leaders in the Great Hall of the People in Beijing, the expansive theater right off Tiananmen Square. Speaking in front of a giant gold hammer and sickle framed by bright red drapes, Xi held forth for 3½ hours, declaring that China would look outward to solve its problems.

“China will not close its door to the world — we will only become more and more open,” Xi declared to his rapt audience of party leaders, many of them having close ties to the billionaire investors who represent China in the global market. “We will deepen reform of the investment and financing systems, and enable investment to play a crucial role in improving the supply structure.”

China watchers said Xi was alluding to the government’s relatively new economic plan, dubbed “Made in China 2025,” which leaders had unveiled in 2015. The detailed vision shifted the focus on domestic research investments to the need to pump money into — and better understand — foreign markets.

“We will,” the document proclaimed, “guide enterprises to integrate into local culture.”

“We will,” the document continued, “support enterprises to perform mergers, equity investment and venture capital investment overseas.”

At the top of the investment wish list were high-tech industries like artificial intelligence, robotics and space travel.

For the increasingly powerful Chinese leader, it was the culmination of years of efforts to guide how China spends its blossoming wealth. In addition to luring foreign companies to China, Xi wanted the country — which is sitting on several trillion dollars in foreign exchange reserves — to start investing abroad.

The plan had “much more money behind it” and “much more coordination” between Beijing and Chinese industrialists than previous economic strategies, according to Scott Kennedy, an expert on Chinese economic policy at the Center for Strategic and International Studies, a Washington think tank that specializes in defense matters.

“And a big component of that is acquiring technology abroad,” he said.

From 2015 to 2017, Chinese venture capitalists pumped money into hot companies like Uber and Airbnb, but also dozens of burgeoning firms with little or no name recognition. The country didn’t just want “trophy assets,” Kennedy explained. China’s leaders wanted to “fill in some of the gaps they have” in China’s tech economy.

While the Asian power has piled up profits from its large manufacturing plants that churn out low-cost products, the Beijing government realized it would face declining productivity unless its economy, from agriculture to manufacturing, adopted high-tech methods. Essentially, China wanted to automate entire industries — including car manufacturing, food production and electronics — and bring the whole process in-house.

So Beijing’s leaders encouraged the country’s cash-rich investors to search for “emerging companies that have technologies that may be extremely important … but aren’t proven,” Kennedy said. The initiative has spawned investments in American startups that work on robotics, energy equipment and next-generation IT. Of particular concern to U.S. national security officials is the semiconductor industry, which makes the microchips that provide the “guts” of many advance technologies that China is seeking to leverage.

“A concerted push by China to reshape the market in its favor, using industrial policies backed by over one hundred billion dollars in government-directed funds, threatens the competitiveness of U.S. industry and the national and global benefits it brings,” declared a January 2017 report from the President’s Council of Advisors on Science and Technology, warning of the urgent threat to U.S. superiority in semiconductor technology.

Notably, many of China’s investments didn’t register on the CFIUS radar. They involved the early-seed funding of tech firms in Silicon Valley and low-profile purchases such as the one in Delaware bankruptcy court. They included joint ventures with microchip manufacturers, and the research and development centers created with international partners.

“They have diversified to look for smaller targets,” Kennedy said. “Those things typically do not generate a CFIUS reaction. That is part of it.”

An obscure research body

CFIUS was set up by Congress in 1975 amid growing concerns about oil-rich countries in the Middle East buying up American companies, from energy firms to armsmakers. Chaired by the Treasury Department, the committee brought together representatives from all the major Cabinet agencies to assess the financial, technological and national security threats posed by such investments. For its first decade, however, CFIUS existed mostly as an obscure research body. From 1975 to 1980, the committee met only 10 times, according to congressional reports.

Japan’s economic ascendance in the 1980s changed that. The Defense Department asked CFIUS to step in and investigate potential Japanese purchases of a U.S. steel producer and a company that made ball bearings for the military. In 1988, Congress gave the committee the authority to recommend that the president nix a deal altogether. Still, the committee remained mostly an ad hoc operation into the 1990s.

“Bureaucratically it was not a very smooth, functioning operation,” recalled Steve Grundman, who worked as part of the committee during the Clinton administration. “We had to pick up some intelligence here, some technology assessment there, some industrial analysis hither.”

After the Sept. 11, 2001, terrorist attacks, Congress renewed its interest in CFIUS, passing legislation that instructed the committee to consider a deal’s effect on “homeland security” and “critical industries,” a notable change, according to Rosenzweig, the DHS official who worked with CFIUS during the George W. Bush administration. The directive gave the committee a mandate to keep an eye on a wider array of industries, such as hospitals and banks, that DHS considered “critical” to keeping American society operating.

Rosenzweig called it a “singular shift.” Over time, he said, the committee went from reviewing acquisitions of steel companies — involving just two parties and a tangible product — to investigating technically complex purchases of microchip companies and other software or data-rich firms.

“When I first came to CFIUS, the filings from the other side would be a few-page letter about why this was a good deal,” Rosenzweig said. “Now it’s a stack of books that’s up to my knee.”

The committee’s staffing and resources have not kept pace with the growing workload, multiple people who work with CFIUS told POLITICO. While the Treasury Department has been hiring staffers and contractors to help handle the record workload, the committee’s overall resources are subject to the whims of the individual agencies involved in the process, said Stephen Heifetz, who oversaw the CFIUS work at DHS during the second Bush administration.

There is no single budget or staffing figure for CFIUS. Instead, each agency decides the level of personnel and funding it’s willing to commit to the committee. The Treasury Department and DHS have two of the larger CFIUS teams, Heifetz said. During his tenure, Heifetz’s DHS squad included roughly 10 people, split equally between government workers and outside contractors.

“Each agency decides more or less on their own how they’re going to staff it,” Heifetz said.

At Treasury, there are now between 20 and 30 people working for CFIUS, according to a senior department official. But even with the expanded team, the committee is stretched precariously thin. The official described 80-hour workweeks, regular weekend work and no ability to take time off.

“It’s enough to handle the current mandate, but not comfortably,” the official said.

Amid this uncertainty over resources, CFIUS investigations into foreign acquisitions nearly tripled from 2009 to 2015. The most common foreign investor that hits the CFIUS radar is now China. Nearly 20 percent of the committee’s reviews from 2013 to 2015, the most recent data available, involved the Asian power, easily ahead of second-place Canada at just under 13 percent.

Since 2015, the Treasury official said, those trends have only continued: Chinese deals now represent a large plurality of the committee’s work.

The attention appears to be well-founded. In recent years, China has been repeatedly accused of industrial espionage — using indirect means to obtain American software and military secrets, everything from the code that powerswind turbines to the designs that produce the Pentagon’s modern F-35 fighter jets. And several Chinese businessmen have pleaded guilty to participating in complex conspiracies to get their hands on sensitive technical data from U.S. firms and shuttle it back to Beijing. Again and again, high-tech products and military equipment have popped up in China that bear a too-striking resemblance to their American counterparts.

Spurred by these incidents, CFIUS has successfully advised the president to nix Chinese deals at a record clip. In December 2016, President Barack Obama stopped a Chinese investment fund from acquiring the U.S. subsidiary of a German semiconductor manufacturer — only the third time a president had taken such a step at that point. In September 2017, Trump halted a China-backed investor from buying the American semiconductor maker Lattice, citing national security concerns.

Three months later, a Chinese company’s plan to acquire the American money transfer company MoneyGram fell apart when the two sides realized they would likely not get CFIUS approval because of concerns that the personal data of millions of Americans — including military personnel — could fall into the hands of the Chinese military.

Weeks after that, the committee essentially jettisoned a Chinese state-backed group’s attempt to buy Xcerra, a Massachusetts-based tech company that makes equipment to test computer chips and circuit boards. Then, in March, Trump blocked the purchase of the chipmaker Qualcomm by Singapore-based Broadcom Ltd. CFIUS said such a move could weaken Qualcomm, and thereby the United States, as it vies with foreign rivals such as China’s Huawei Technologies to develop the next generation of wireless technology known as 5G.

To national security leaders, though, CFIUS is still only scratching the surface of China’s ambitions to acquire U.S. technology, noting that traditional sale-and-purchase agreements to obtain a U.S. company aren’t the only ways to gain access to cutting-edge technology.

“You can buy a [partial] interest in a company and gain access to the same type of technology,” Attorney General Jeff Sessions told Congress in October, adding that Justice Department investigators “are really worried about our loss of technology” in instances where Chinese investors buy small stakes in American tech companies.

The U.S. military has raised similar concerns. Defense Secretary Jim Mattis warned last summer that America is failing to restrict foreign investments in certain types of critical industries, testifying during another hearing that CFIUS is “outdated” and “needs to be updated to deal with today’s situation.”

A mysterious takeover

The case that occurred last summer in an obscure courtroom in Delaware seemed innocuous enough: one relatively small tech firm buying out a bankrupt competitor, a transaction that elicited about as much drama as mailing a letter.

The bankrupt semiconductor maker ATop Tech had only 86 employees when it was declared insolvent. But it had a more than a $1 billion market share of the electronic-design automation and integrated circuits markets, the company told the bankruptcy court, giving it potential value to any player seeking to enter the highly specialized semiconductor industry.

Avatar Integrated Systems, the company seeking to purchase ATop, was apparently such a player. But it was not well known to others in the semiconductor industry, and its precise ownership was a bit of a mystery. The sole director listed on its incorporation papers was a Hong Kong-based businessman named Jingyuan Han, and it issued shares to King Mark International Limited, a Hong Kong company in which Han was an investor. Avatar was set up in March 2017, according to the company.

The transaction went ahead despite concerns raised to the court by other players in the semiconductor industry, as well as those of a former senior Pentagon official who specifically suggested the Chinese government may be backing Avatar.

The former Pentagon official, Joseph Benkert, was enlisted by another American semiconductor company, Synopsys, to help recoup money it was owed by ATop. He warned the court that the deal might have national security risks.

“CFIUS has identified businesses engaged in design and production of semiconductors as presenting possible national security vulnerabilities because they may be useful in defending, or seeking to impair, U.S. national security, as semiconductor design or production may have both commercial or military applications,” Benkert, the former assistant secretary of defense for global affairs under the second Bush administration, wrote to the court.

Benkert argued that the question of Avatar’s ownership needed more review given that the company appeared to be “under the control of Han, a Chinese national.”

“In my opinion,” Benkert wrote, “the proposed transaction is likely to receive thorough CFIUS scrutiny and there is a material risk that it will not receive CFIUS approval.”

But despite those concerns, the deal to buy ATop Tech was not given a formal review by CFIUS, according to a senior administration official with direct knowledge of the process. A Treasury Department official, speaking on behalf of CFIUS, declined to comment on the merger.

An Avatar official, reached at the company office in Santa Clara, California, did not respond to questions or a request for an interview with Han. The company did not respond to multiple requests to discuss its relationship — if any — with the Chinese government or the details of its business.

Han, who has been described in media reports as one of China’s wealthiest men, has spent his career almost entirely in the iron and steel industries. Avatar’s scant history seemed to suggest that it was created for the sole purpose of acquiring an established American semiconductor firm like ATop Tech, according to several former national security officials who still work on CFIUS cases.

Attempts to reach Han through China Oriental Group, the iron and steel company that he runs, were also unsuccessful.

Officials familiar with the CFIUS process say that bankruptcy deals such as the Atop-Avatar case sometimes fall off their radar because of difficulty in discerning whether Chinese investors are working with the government. In other bankruptcy cases, Chinese investment in a potential buyer may not be visible in official filings, especially when a web of holding companies is involved. Thus, say current and former officials working with CFIUS, a significant amount of detective work is necessary to discern both the identity and the intentions of the investors.

Traditionally, courts have defined control of a company as “the ability to direct management to make certain decisions.” But a former Treasury Department official said CFIUS needs to focus on “beneficial ownership,” defined as having the ability to obtain technology from the firm, rather than overall decision-making power.

“It is very hard to find beneficial ownership,” said the official. “Our concern is the capacity of the system to deal with these.”

The bills pending in Congress to strengthen the CFIUS review process include provisions designed to make scrutiny of bankruptcy cases easier. The bills would require CFIUS to “prescribe regulations to clarify that the term ‘covered transaction’ includes any transaction … that arises pursuant to a bankruptcy proceeding or other form of default on debt.”

A sharper focus on bankruptcy cases, particularly in making sure CFIUS scrutinizes investors to ties to foreign governments, is desperately needed, said a former Pentagon official who is still involved in CFIUS cases. “How do they find out about it now? They are reading The Wall Street Journal late at night,” the official said. “It is not a very systematic process.”

The former official also recalled that in the past, the Pentagon has hired an outside contractor to scour around for unreported transactions that might raise some national security flags, such as in the semiconductor or aerospace sectors. Such checks need to be performed in a more systematic way.

“There is no process for surfacing information out of the bankruptcy courts,” the official said.

China goes to Silicon Valley

In Silicon Valley, Chinese investment isn’t typically viewed as a threat, but rather more of a blessing.

Chris Nicholson, co-founder of Skymind, an artificial intelligence company that makes the type of cutting-edge software that both the United States and China covet, recalls the many long months he spent in 2014 trudging up and down Sand Hill Road, the heart of Silicon Valley’s leading venture capital firms, and all the doors that slammed shut.

“That was a long, dry year for us,” he told POLITICO.

Nicholson hadn’t sought Chinese money. But then Tencent, China’s internet and telecommunications giant and now one of the world’s largest companies, approached the firm, offering $200,000 in seed funding. The Chinese monetary infusion buoyed Skymind, which soon landed a coveted spot in Y Combinator, the powerful startup accelerator. American investors, who had only months earlier eschewed the firm’s overtures, quickly changed their tune. Chinese investment soon beget American investment.

“It was that crucial piece of Chinese capital that allowed us to survive,” Nicholson said. “That’s all it took. Now we’re a company with 35 employees.”

Reflecting a common feeling among his cohorts in Silicon Valley startups, Nicholson insisted that working with Chinese investors does not mean granting Beijing officials access to the coding process. “My American co-founder and I are in control,” Nicholson said, noting that Skymind has given up none of the rights to its intellectual property and has made its code “open sourced,” which means the code is freely available for cybersecurity experts to inspect, audit and offer suggestions.

But Bryan Ware, CEO of Haystax Technology, which works with law enforcement, defense and intelligence clients on securing their technologies, cast some doubt on the idea that the owners of tech startups would naturally refuse to share details of their technology with their investors: “If you’ve got a Chinese investor and that’s the lifeblood that’s going to allow you to get your product out the door, or allow you to hire your next developer, telling them, ‘No, you can’t do that,’ or, ‘No you shouldn’t do that,’ while you have no other alternatives for financing — that’s just the nature of the dilemma.”

“Every investment comes with a risk of some loss of intellectual property or foreign influence and control,” Ware said.

And too many Silicon Valley deals exist in a “netherworld” between passive investment and absolute takeover, “where there’s access to information, technical information, [and] there is the ability to influence and potentially coerce management,” according to the senior Treasury Department official.

One major concern among specialists like Ware is that Beijing officials could use early Chinese investments in next-generation technology to map the software the federal government and even the Defense Department may one day use — and perhaps even corrupt it in ways that would give China a window into sensitive U.S. information.

A POLITICO review of 185 tech startups with Chinese investors found just over 5 percent 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.

“There’s a tremendous amount of intelligence value there,” Ware said. “All governments desire to know what other governments are doing. And knowing the technologies and how they work I think is a big part of that.”

While there’s no indication that the firms had U.S. government contracts at the time that Chinese investors became involved, that may be part of China’s strategy. Derek Scissors, who manages the American Enterprise Institute’s China Global Investment Tracker, an exhaustive database of China’s major global investments, said that as welcome as the surge of Chinese-funded deals may be in Silicon Valley, the engine behind them is the Chinese government. China’s Silicon Valley investment strategy “was shaped by the state and that shaping has gotten tighter,” he said.

Still, many Chinese investments in the United States are not directly backed by the Beijing government, but it can be hard to distinguish.

Some prominent Chinese VC firms in Silicon Valley have clear links to the government. Westlake Ventures, for example, received funding from the government in the coastal Chinese city of Hangzhou, according to media reportsand a Pentagon research paper. And Westlake has put money into other VC funds, such as the WI Harper Group, which has a stake in a wide slate of American tech companies, from a dating app to a three-dimensional imaging company to a maker of robot cooks. Westlake did not respond to a request for comment.

But it’s not always easy to trace the money back to a single source, let alone determine what connection that source has to Beijing’s Communist leadership. Haiyin Capital, a Beijing-based VC firm, is partially backed by a state-run Chinese company, according to a company release. Also complex is ZGC Capital Corporation — located in Silicon Valley and focused on providing startups with basic business help — is a subsidiary of a state-owned enterprise funded by the Beijing government, according to the organizations’ websites. Attempts to reach each organization were unsuccessful.

Security and economics experts say they are unsure how much financial or national security harm these Chinese investments are actually causing the United States — if any — simply because it may not be clear for years exactly how important the technology may be.

In the meantime, entrepreneurs in Silicon Valley are blunt: America actually needs Chinese money to maintain its global tech advantage.

“Here’s my warning shot,” Nicholson said. “If we make it difficult for foreign talent and foreign capital to find each other by over-regulating early-stage startup investing … we will lose our supremacy as the top tech economy in the world.”

Enter Congress

In Washington, Silicon Valley’s warning has been heard loudly enough to delay the passage of a bill to strengthen the CFIUS process, despite the support of such bipartisan figures as Cornyn, the second-ranking Senate Republican, and California’s own Democratic Sen. Dianne Feinstein, the ranking member of the Senate Judiciary Committee.

Last year, after a cascade of warnings from the Defense Department, Justice Department and other powerful sources, both the House and Senate seemed ready to take action to strengthen oversight of foreign investment in technology companies.

The bipartisan proposal would direct CFIUS to consider whether pending investments would erode America’s technological edge, enable a foreign government to utilize digital spying powers that might be used against the United States, or give sensitive data — even indirectly — to a foreign government. Similarly, it would expand the definition of “critical industries” — a reference to sectors like banking, defense or energy — to include “critical technologies,” a significant expansion of the committee’s current mandate.

Under the bill, CFIUS would have to create a system to monitor transactions that aren’t voluntarily brought to the committee’s attention.

The measure would also centralize some of the committee’s functions and allow the committee to charge filing fees up to 1 percent of the total value of the transaction up to $300,000, and let Treasury offer a single CFIUS budget request rather than relying on contributions from other departments.

The Trump administration offered a full-throated endorsement of the bill in January, saying it “would strengthen our ability to protect national security and enhance confidence in our longstanding open investment policy.”

And while the bill doesn’t explicitly cite China, the provisions are clearly aimed at limiting its access to the most sensitive areas.

“Any Chinese-related company that is part of our supply chain is a concern to me,” Rep. Robert Pittenger (R-N.C.), a lead House sponsor of the bill, told POLITICO.

Pittenger insisted that Congress’ inaction is allowing China to brazenly pilfer the technology that drives America’s military might, and sell that technology to adversaries like Iran and North Korea. He noted that a Treasury official told him getting the bill signed is the department’s No. 1 legislative priority for 2018.

“We can’t turn a blind eye to this,” Pittenger said.

But many technology entrepreneurs believe the bill would simply drive cutting-edge research overseas. In 2016, foreign investors injected $373 billion into the United States, a figure that has been mostly increasing since the early 2000s, according to government data. Lengthening the CFIUS review time — currently 30 days, but set to extend to 45 days under the new bill — could damage the “brittle process” of early-stage fundraising, said Nicholson, who encouraged lawmakers to focus on expanding CFIUS powers in other areas, such as bankruptcy courts.

“I worry that they’re driving a bulldozer towards a rose garden,” said Nicholson, echoing his claim that training the CFIUS lens on Silicon Valley could scare off the very financing that keeps America growing.

IBM’s vice president for regulatory affairs, Christopher Padilla, agreed, warning at a January hearing that the bill “could constitute the most economically harmful imposition of unilateral trade restrictions by the United States in many decades.”

He raised particular concerns about expanding CFIUS authority to cover foreign investments in “critical technologies,” a phrase tech leaders say is worryingly opaque and that could force companies peddling sensitive technology to have every single sale reviewed.

Padilla called it a “we’ll know it when we see it” approach to regulating that “would be deeply damaging to U.S. competitiveness, and, more important, could lead to a false sense of security.”

Some industry groups have suggested that the bill should delineate these technologies — robotics or artificial intelligence, for instance — to avoid having every deal scrutinized from top to bottom.

“We would be well served to define those issues from the outset,” said Dean Garfield, CEO of the Information Technology Industry Council, a trade group representing industry heavyweights such as Amazon, Apple, Facebook, Google, Microsoft and Twitter. Garfield said getting the bill revised is a top-five issue for ITI in 2018.

He cautioned that the bill, as written, could spike the number of annual CFIUS reviews from “a few hundred deals” to “a few thousand.”

Proponents, however, feel that specifying specific technologies might be impossible. The software powering the country — from waterways to missile systems — is constantly changing and evolving, they say. Instead, they suggest, new CFIUS funds and a streamlined reporting process would help keep the growing stream of deal reviews moving.

“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. “That is a down payment on long-term national security.”

Nonetheless, lawmakers have been working to address industry complaints, making tweaks to the legislation. And just last week, lawmakers made a breakthrough, agreeing to slightly narrow the bill’s scope, raising the chances the measure will make it to the president’s desk.

The House and Senate are scheduled to mark up their respective CFIUS bills on Tuesday, and lawmakers now are angling to attach the legislation to the annual, must-pass defense authorization bill as a way to guarantee it gets through. But lingering disputes could still derail the process.

National security leaders and lawmakers warn that these squabbles, while reflecting sincerely held positions, are simply delaying necessary action. At that January hearing, Cornyn described a changing reality if CFIUS is left in its current iteration.

“Just imagine if China’s military was stronger, faster and more lethal,” Cornyn said.

“That is what the future likely holds,” he added, “unless we act.”


Unholy US-Israel alliance in the Holy Land

May 16, 2018

On Monday, Israel reminded the world why it remains the most hated country in the Middle East by committing mass murder on live television. No less than 61 unarmed Palestinians were killed by Israeli security forces and 2,271 were injured — including 1,359 by live ammunition. With complete disregard for justice and human rights, Israel did again what it has been doing in Palestinian lands for decades.

Daily Sabah (Turkey)

A toxic mix of U.S. President Donald Trump’s unadulterated political ambition and Vice President Mike Pence’s evangelical extremism resulted in a catastrophic decision that placed U.S. interests in the Middle East at risk. Over the past year, Washington has lost a number of valuable friends and allies and managed to bring in line a handful of satellite states. In light of the most recent developments, the United States will presumably come to be seen as a devil — not just by a handful of radicals but by the wider Arab community. Needless to say, nothing good will come out of this episode.

Ironically, the relocation of the U.S. Embassy in Israel to Jerusalem will in no way contribute to the security and stability of Israel.

A Palestinian protester throws stones at Israeli troops during clashes after protests near the border with Israel in the east of Gaza Strip
Palestinians hurled stones and incendiary devices. EPA photo

Tel Aviv will learn the hard way that the resistance cannot be defeated by killing innocent people. Instead, Israel’s most recent actions will further mobilize millions of Palestinians. Previous generations of Israeli officials taught the Palestinian masses not to fear death. The young generation of Palestinians who grew up under Israeli occupation never feared death in the first place. One way or another, Israel stands to lose.

Failure to speak up against Israel’s atrocities will bring down Arab regimes. In the face of Tel Aviv’s blatant disregard for human rights and international law, Arabs will start holding accountable their kings, princes and emirs, who are complicit in Israeli crimes. This is how grassroots opposition movements are born. Arab governments who tacitly support this U.S. move through their silence will be judged by history. They will eventually be forced by their furious people to pay a steep price for their complicity.

Finally, the steps taken by the U.S. government and the government of Israel will further isolate the U.S. Only seven U.N. member countries backed U.S. decision to move its embassy to Jerusalem last December, while 128 opposed it. The list of supporters says it all: Guatemala, Honduras, the Marshall Islands, Micronesia, Nauru, Palau and Togo voted against the U.N. resolution condemning the U.S. decision.

Now, moving the embassy with almost the entire international community united in opposition will push the Middle East deeper into chaos, which will in turn fuel extremism and radicalization, and escalate security threats. If European governments do not step up to balance out the destabilizing moves of Washington and Tel Aviv today, they will no doubt suffer the consequences.



Trump’s China Concern Adds Pressure in Race to Be First With 5G

April 2, 2018


By Scott Moritz, Olga Kharif and Todd Shields

  • First company to claim faster service could win consumer prize
  • Some see U.S. tech supremacy as one of the stakes of the game

The Trump administration’s concern about China’s growing technology clout is putting even more pressure on U.S. wireless carriers in their marketing battle over which company will be the first to offer 5G.

 Image result for 5g, photos, art

Verizon Communications Inc., AT&T Inc. T-Mobile US Inc. and Sprint Corp. are rushing to deliver fifth-generation wireless service that will perform as much as 100 times faster than 4G. At stake is the potential to grab market share in an industry where consumers are fiercely loyal to their carriers. And the companies need to upgrade their networks quickly so they can quash the idea that government should intervene to accelerate the process.

“The race is really about getting that 5G icon on the handset,” said Chetan Sharma, a wireless consultant. In the consumer’s mind, 5G is way better than 4G, he said. Verizon boosted its market share by 5 percentage points after it was the first to roll out 4G more than seven years ago.

While fully standardized coast-to-coast 5G networks are at least two years away, the carriers are pushing hard into technology development and waging a fierce marketing campaign through a barrage of press releases. Verizon knows the value of being first, which may explain why it’s issued three times as many announcements touting 5G than its smaller rivals.

 Behind the marketing is billions of dollars in engineering. Carriers, software developers, chipmakers and phone manufacturers are spending about $200 billion a year in 5G research and deployment. The aim is to have a ubiquitous network that can run with lower latency, or lag time, in transferring data — the type of super-fast connections that enable advances like robotic surgery and autonomous cars.

At the same time that carriers are fighting for consumer mind share, the threat from China has prompted the Trump administration to consider creating a nationalized 5G network to protect U.S. security. President Donald Trump has already killed Broadcom Ltd.’s proposed takeover of Qualcomm Inc. on concern that China would gain an edge in critical 5G technology.

The U.S. government is also trying to make it easier for American companies to compete with China. The Federal Communications Commission voted this month to ease environmental and historic reviews for companies installing some antennae for 5G service. Ajit Pai, the agency’s chairman, said the vote amounted to “concrete action that will help the United States lead the world in 5G.”

In addition, the FCC is moving to block some spending by carriers on gear from companies posing a national security threat — an initiative that could strengthen barriers confronting Chinese equipment makers eager to sell in the U.S.

The consideration of a national 5G network drew strong opposition from industry officials and even Pai, who was named chairman by Trump. Opponents said private industry is better suited to advance the technology than the government. The White House said the plans were only in the early stages and that no decision has been made.

Read more: U.S. said to weigh emergency law for China investments

For its part, China has been encouraging development of 5G and has identified some airwave bands like 3.5 gigahertz for use as a possible global spectrum. That’s turned up the pressure on the U.S. to allocate more mid-band spectrum, said Mark Lowenstein, a mobile-industry consultant.

Verizon showed seven years ago that getting even a few months ahead of the pack can lead to significant market-share gains and years of bragging rights. Verizon’s lead in 4G LTE gave it a “decade-long perception of network superiority, which translated into probably one of the longest sustained periods of subscriber gains,” Sharma said.

Verizon launched 4G in December 2010. In the previous five years, the company’s average share of new subscribers was 36 percent. From 2010 to 2015, its average share of new users jumped 5 percentage points to 41 percent, partially due to the faster network, Sharma said.

Different Approaches

No carrier wants to be seen as the laggard. And yet at this point there’s no agreement on whether high or low frequencies are best for 5G. High frequencies carry more data but can’t travel far and are easily blocked by rain and foliage. To make high frequencies work, a network requires many more antennae in a smaller radius. Low-frequency airwaves don’t carry as much data but can travel greater distances and through walls. The four carriers are taking different approaches:

  • Verizon is using high-frequency airwaves to beam 5G broadband to homes, and starting mobile 5G service this year
  • AT&T is also testing high-frequency airwaves, promising mobile 5G this year
  • Sprint is using mid-band airwaves for nationwide mobile 5G in early 2019
  • T-Mobile is implementing multiple bands for mobile 5G this year

And while each company will inevitably dispute any first-place claims by the others, consumers are going to be swayed mostly by speed.

“T-Mobile will probably use low frequency and be the first with 5G,” said Jennifer Fritzsche, an analyst with Wells Fargo & Co. “And if you combine that with the marketing power of that company, it will be a powerful mix.”

See related story: Google-led plan to upend wireless industry gains momentum

For now, while the 5G battle might be mainly about public perception, it’s still a race no one is willing to lose.

“Verizon is the furthest down the road in trialing,” said Michael Mahoney, senior managing director at Falcon Point Capital LLC, which invests in wireless companies.. “And then AT&T. They are old hands at this game. They are also very conscious about not being burned by marketing.”


China’s Huawei Is Determined to Lead the Way on 5G Despite U.S. Concerns — “5G will be made in China.”

March 30, 2018

Mobile giant inundates standards-setting confabs with its representatives and recommendations

Huawei has sent large teams of representatives to industry meetings to establish 5G standards. Above, the company’s booth during the Mobile World Congress in Barcelona in February.
Huawei has sent large teams of representatives to industry meetings to establish 5G standards. Above, the company’s booth during the Mobile World Congress in Barcelona in February. PHOTO: GUO QIUDA/XINHUA/ZUMA PRESS

CHENNAI, India—The U.S. government is trying to thwart Huawei Technologies Co.’s ascent in wireless technology, but the Chinese company is determined to prevail.

Far from Washington, where the government has called Huawei a national-security threat, the world’s largest maker of cellular-tower equipment is trying to lead development and design decisions for the next generation of mobile networks, dubbed 5G.

Huawei is sending large teams of representatives to industry-sponsored meetings—including one held last week in this south India port city. Just as the home-movie industry agreed years ago on specifications so DVD players from different manufacturers played the same videos, wireless-technology companies are now meeting to establish 5G standards.

Huawei’s representatives are swamping such conferences with design recommendations for how the new system should work, leveraging Huawei’s large research-and-development budget and its growing workforce of skilled engineers, according to the meetings’ attendees and outside analysts.

The U.S. and Europe, with the help of Western firms, were the quickest to roll out today’s 3G and 4G mobile networks. Now, industry leaders say China, with Huawei’s leadership, is ahead in the race for their successor.

“5G will be made in China,” said Dimitris Mavrakis, a director at ABI Research.

The next-generation network promises better reliability and speed, as well as the potential to more fully unlock new technologies such as self-driving cars. But the industry is still crafting the technical details about how 5G will actually work at meetings like the one held in Chennai.

Some companies are pushing certain standards that rely on technology they have the right to patent. In addition, hardware manufacturers support standards that would be in line with products they have been developing.

Huawei, which is also the world’s No. 3 smartphone maker, sent 40 representatives to the Chennai meeting, behind only the 41 from South Korean smartphone leader Samsung Electronics Co. , according to conference records. San Diego chip maker Qualcomm Inc.brought 30 delegates. Huawei’s major wireless-equipment rivals, Sweden’s Ericsson AB and Finland’s Nokia Corp. , sent 25 and 18 representatives, respectively.

Representatives from Chinese companies now hold 10 of the 57 chairman or vice chairman positions in decision-making panels at the France-based industry group that organizes the standard-setting meetings, according to Jefferies Group researchers.

Even before the current 5G discussions, Huawei had been ramping up its research and patenting efforts, nearly matching design contributions for 4G standards by the then-undisputed leader in wireless equipment, Ericsson.

Huawei has been a leader in 5G-standards submissions to the cellular industry’s specifications-setting consortium, 3GPP, according to early tallies. As of early 2017, it had submitted 234 contributions, compared with runner-up Ericsson’s 214, according to the latest data available from wireless-patent developer InterDigital Inc.

Huawei said Friday it increased its research-and-development budget to $14.3 billion in 2017, up 17% compared with a year earlier. That is more than the combined 2017 total of Ericsson and Nokia, which respectively spent $4.6 billion and $6 billion, though, unlike Huawei, neither has a major consumer business.

U.S. leaders have made clear they are trying to prevent a world in which most telecom electronics are made by Huawei and its Chinese peers, fearing Beijing could spy, steal trade secrets or cast cyberattacks through them. A Huawei spokesman says the company is employee-owned and that no government has ever asked it to spy on or sabotage another country.

A Trump administration panel stepped in earlier this month to block Broadcom Ltd.’sattempt to buy Qualcomm, saying the deal could reduce Qualcomm’s research-and-development budget and the American firm’s own influence on 5G development. In a letter, the panel cited Huawei’s growing presence at meetings like the one in Chennai: “Chinese companies, including Huawei, have increased their engagement in 5G standardization working groups.”

The U.S. wireless industry is dominated by four major players: Verizon, AT&T, T-Mobile and Sprint. Now that just about everyone has a cellphone, each operator is looking for new ways to grow. But how did we go from the days of one giant landline monopoly to four competitive cell companies? Illustration: Shaumbe Wright/WSJ

After four days huddled over laptops in the conference rooms of a luxury hotel in Chennai, one of India’s most-populous cities, attendees set “new radio” specifications—standards that will dictate how the cellular towers of the future will talk to smartphones and other devices. About 400 telecom-industry representatives from 176 companies—mostly men, some sporting backpacks and short-sleeve dress shirts—hashed out the new rules between smoking-room cigarette breaks.

While the group reached quick consensus on the radio specs, controversy flared over another topic. Huawei and Ericsson representatives faced off over how many topics the conferences should tackle in the next series of meetings that start after June.

Ericsson representatives argued the workload at these conferences was already too much—and submitted an official proposal to reduce the number of topics addressed in future meetings.

Huawei, meanwhile, proposed tackling more topics in coming meetings. Attendees say Huawei takes advantage of its large delegation to influence as many topics as possible.

“We don’t have the same amount of delegates,” Ericsson’s head of standardization, Jan Farjh, said in a recent interview before the meeting. “We do not intend to flood the process,” he said. “I think you compete with competence.”

The Huawei spokesman says the company “respects and follows the … standardization principles where debate and disagreement among members are common.”

Ericsson and Huawei representatives each made their case to other delegates in the hotel hallways during breaks. By the time the major discussions had ended and the hotel put on a traditional Indian dance performance, delegates reached a compromise: They tentatively put about 20 topics on the group’s future agenda, according to attendees. That was more than what Ericsson wanted, but fewer than Huawei had pushed.

The FBI Was Dangerous When It Was Independent

March 26, 2018

J. Edgar Hoover’s tenure was a catastrophe for civil liberties, precisely because he was unaccountable.

Federal Bureau of Investigation Director J. Edgar Hoover testifies before the House on Un-American Activities Committee in Washington, March 26, 1947.
Federal Bureau of Investigation Director J. Edgar Hoover testifies before the House on Un-American Activities Committee in Washington, March 26, 1947. PHOTO: GETTY IMAGES

Camera bulbs flashed. Spectators jostled for a better view. All eyes were on the dark-haired director of the Federal Bureau of Investigation, whose integrity had been unquestioned until his search for collusion between Russia and U.S. government officials angered the president. When asked to back off, the director had refused. Now, at a congressional hearing, he was about to declare publicly his independence from the president.


That FBI director was J. Edgar Hoover. The president was Harry S. Truman. And the testimony occurred 71 years ago this Monday. Pouring fuel on the flames of McCarthyism, Hoover warned Americans of “the liberal and progressive who has been hoodwinked and duped into joining hands with the communists.”

In the wake of Andrew McCabe’s firing as deputy FBI director and James Comey’s dismissal as director last year, Hoover’s testimony is a reminder that Americans should be careful in wishing for an independent FBI. Hoover’s 48-year tenure as FBI director was a catastrophe for civil liberties, featuring mass detention of innocent people, warrantless wiretaps, politically motivated purges of government officials, and violence against civil-rights protesters. Each of these violations was made possible by the FBI’s independence.

The FBI detained as many as 10,000 innocent civilians during World War II through its Custodial Detention Program. When Attorney General Francis Biddle learned of the program, he ordered an end to it, calling it “impractical, unwise, and dangerous.” Hoover didn’t care. He renamed it and retained it.

After the war, Hoover labeled Truman soft on communism and used allies in the press to pressure the White House into authorizing investigations of two million government employees. Hoover’s ghostwriters and supporters wrote hundreds of articles praising the FBI and lionized G-men in movies and television shows. To curry favor with Walter Winchell, an influential gossip columnist, Hoover even arranged for an FBI driver, bodyguards and a commission in the Naval Reserve.

With a political power base independent of the White House, Hoover often coerced presidents and attorneys general into tolerating his operations. Attorneys general for Presidents Truman and Eisenhower allowed the FBI to wiretap, burglarize and open the mail of anyone Hoover chose. He targeted gays and lesbians, antiwar activists and civil-rights leaders from Martin Luther King Jr. to Thurgood Marshall.

At times, Hoover’s hatred of the civil-rights movement led to outright insubordination. After Attorney General Robert F. Kennedy ordered him to protect the Freedom Riders risking their lives for racial equality in Mississippi, Hoover deliberately withheld information about impending attacks on the riders. He then defied Kennedy’s order to send an FBI agent to drive a bus abandoned by the Freedom Riders’ driver. And he refused Kennedy’s order to arrest Ku Klux Klan members for violence surrounding the enrollment of the University of Mississippi’s first black student, James Meredith.

The FBI’s accomplishments have been historic and often heroic, even under Hoover’s leadership. It was indispensable in fighting public enemies from Hitler to Al Capone, and perhaps no other U.S. organization outside the armed forces did more than the FBI to defeat the Soviet Union. And in the post-Hoover era the bureau has generally shown a healthy respect for civil liberties.

But today, when lawmakers and commentators demand an “independent” FBI, Americans should remember the bureau’s history and the dangers of independence. The FBI must be accountable to the president, who is accountable at the ballot box. Otherwise, it is accountable to no one—including and especially the people.

Mr. Walker is an assistant professor at the University of Louisville Brandeis School of Law. This is adapted from a paper titled “FBI Independence as a Threat to Civil Liberties,” to be published this summer by the George Washington Law Review.

U.S. charges Iranians for global cyber attacks on behalf of Tehran

March 23, 2018


WASHINGTON (Reuters) – The United States on Friday charged nine Iranians and an Iranian company with attempting to hack into hundreds of U.S. and international universities, dozens of companies and parts of the U.S. government on behalf of the Tehran government.

 Image result for Iran cyber attacks, photos

The cyber attack pilfered more than 31 terabytes of academic data and intellectual property from 144 U.S. universities and 176 universities in 21 foreign countries, the U.S. Department of Justice said in a statement.

The U.S. Treasury Department said on its website that it was placing sanctions on those accused and the Mabna Institute, a company described by U.S. prosecutors as designed to help Iranian research organizations steal information.

“These defendants are now fugitives of justice,” U.S. Deputy Attorney General Rod Rosenstein said at a press conference, warning that they may face extradition in more than 100 countries if they travel outside of Iran.

The action is the fourth time in the past few months that the administration of U.S. President Donald Trump has blamed a foreign government for major cyber attacks, a practice that was relatively rare under the Obama administration.

U.S. Deputy Attorney General Rod Rosenstein speaks at a news conference with other law enforcement officials at the Justice Department to announce nine Iranians charged with conducting massive cyber theft campaign, in Washington, U.S., March 23, 2018. REUTERS/Yuri Gripas

The campaign targeted the email accounts of more than 100,000 professors worldwide and compromised about 8,000 of them, the Justice Department said, describing the conspiracy as one of the largest state-sponsored hacking sprees prosecuted.

Hackers also targeted the U.S. Labor Department, the U.S. Federal Energy Regulatory Commission and the United Nations, prosecutors said.

Last week, the administration accused the Russian government of cyber attacks stretching back at least two years that targeted the U.S. power grid. Washington imposed new sanctions on 19 Russians and five groups, including Moscow’s intelligence services, for meddling in the 2016 U.S. presidential election and other cyber attacks.

 Image result for u.s. electric grid, photos

The Obama administration in 2016 indicted seven Iranians for distributed-denial-of-service attacks on dozens of U.S. banks and for trying to shut down a New York dam. Those hackers were also accused of working on behalf of Iran’s government.

On Friday, the Treasury department named the Iran-based Mabna Institute and Behzad Mesri, also known as “Skote Vahshat,” who was charged in 2017 with hacking cable TV network HBO.

Reporting by Dustin Volz and Lisa Lambert; editing by Susan Heavey and Grant McCool

On January 21, 2016, a grand jury in the Southern District of New York indicted seven Iranian nationals for their involvement in conspiracies to conduct a coordinated campaign of distributed denial of service ("DDoS") attacks against the United States financial sector and other United States companies from 2011 through 2013.  Each defendant was a manager or employee of ITSecTeam or Mersad, private security computer companies based in the Islamic Republic of Iran that performed work on behalf of the Iranian Government, including the Islamic Revolutionary Guard Corps.

US hits Russia with sanctions for election meddling

March 15, 2018


© AFP / by Andrew BEATTY | US President Donald Trump said Thursday it “looks like” Russia was behind a nerve agent attack on a former spy in Britain

WASHINGTON (AFP) – Donald Trump’s administration on Thursday levied sanctions against Russia’s top spy agencies and more than a dozen individuals for trying to influence the 2016 US presidential election and two separate cyberattacks.The announcement follows a lengthy delay that had caused anger on Capitol Hill and raised questions about Trump’s willingness to confront Moscow.

The measures target five entities and 19 individuals — including the FSB, Russia’s top spy service; the military intelligence agency, or GRU; and 13 people recently indicted by Robert Mueller, the US special counsel handling a sprawling Russia probe.

Sanctions were also levied against individuals behind the separate Petya cyberattack and an “ongoing” attempt to hack the US energy grid.

The move comes despite Trump’s repeated denial that Russia tried to tilt the election in his favor, fearing it could call his victory over Hillary Clinton into question.

The president has also decried more damaging allegations that his campaign colluded with the Kremlin — the subject of Mueller’s ongoing investigation that has seen several key aides indicted or make plea deals.

“It took 14 months,” leading Democratic Senator Amy Klobuchar said of the sanctions. “Finally.”

“Now we must protect our elections going forward,” she added.

Treasury Secretary Steven Mnuchin said the decision showed the administration was “confronting and countering malign Russian cyber activity, including their attempted interference in US elections, destructive cyberattacks, and intrusions targeting critical infrastructure.”

“These targeted sanctions are a part of a broader effort to address the ongoing nefarious attacks emanating from Russia,” he added.

– Moscow’s ‘response’ –

Moscow said it was preparing its response.

“We view this calmly. We have begun to prepare response measures,” deputy foreign minister Sergei Ryabkov told Interfax news agency.

He claimed the US move was designed to coincide with Russia’s presidential election on Sunday.

Many of the main entities and individuals hit — including the spy agencies and ‘troll factory’ boss Yevgeny Prigozhin — already face assets freezes and travel bans, either put in place under Barack Obama’s administration or for actions linked to Russia’s actions in Ukraine.

But the decision heaps pressure on Moscow as it faces separate punitive measures for an alleged attempt to kill a Russian-born British informant with a nerve agent west of London.

Britain, France, Germany and the United States condemned the attack on the Russian ex-spy and his daughter, saying there was “no plausible alternative explanation” to Moscow’s involvement.

Trump said Thursday “it looks like” Russia was behind that attack.

“I’ve spoken with the (British) prime minister and we are in discussions,” he added. “A very sad situation. It certainly looks like the Russians were behind it. Something that should never, ever happen, and we’re taking it very seriously.”

Moscow has denied being involved, claiming the British government was trying to “deflect attention” from difficult negotiations with the European Union over Brexit.

by Andrew BEATTY

U.S. hits Russians with sanctions for election meddling, cyber attacks

March 15, 2018

Image may contain: 2 people, eyeglasses

Photo: U.S. Secretary of the Treasury Steven Mnuchin

WASHINGTON (Reuters) – The United States on Thursday took its most notable action against Russia since Donald Trump became president, slapping sanctions on a group of Russian individuals and entities, including Moscow’s intelligence services, for meddling in the 2016 U.S. election and malicious cyber attacks.

Under pressure to act, the administration still deferred making a move targeting Russian government officials and oligarchs, those closest to Russian President Vladimir Putin.

Thursday’s announcement marked the first time that the U.S. government stated publicly that Russia had attempted to break into the American energy grid, which U.S. security officials have longed warned may be vulnerable to debilitating cyber attacks from hostile adversaries.

Trump has faced fierce criticism in the United States for doing too little to punish Russia for the election meddling and other actions, and a special counsel is looking into whether Trump’s campaign colluded with the Russians, an allegation the president denies.

Combined with the United States joining Britain in blaming Moscow for poisoning a former Russian spy in southern England, the actions represented another plunge in U.S.-Russian relations despite Trump’s stated desire for improved ties.

“The administration is confronting and countering malign Russian cyber activity, including their attempted interference in U.S. elections, destructive cyber-attacks, and intrusions targeting critical infrastructure,” Treasury Secretary Steven Mnuchin said in announcing the new sanctions.

Trump has frequently questioned a January 2017 finding by U.S. intelligence agencies that Russia interfered in the 2016 campaign using hacking and propaganda in an effort eventually aimed at tilting the race in Trump’s favor. Russia denies interfering in the election.

But Mnuchin was unequivocal in saying that Thursday’s Treasury action “counters Russia’s continuing destabilizing activities, ranging from interference in the 2016 election to conducting destructive cyber-attacks.”

A senior administration official told Reuters that Trump, who campaigned on warmer ties with Putin, has grown exasperated with Russian activity.

The Treasury Department aimed the sanctions at 19 Russian individuals and five groups. Sixteen of the Russian individuals and entities sanctioned were indicted on Feb. 16 as part of Mueller’s criminal investigation. While Trump has frequently called the Russia probe a “witch hunt,” the new sanctions appear to affirm Mueller’s investigative strategy.

Trump told reporters during a White House event with Irish Prime Minister Leo Varadkar that “it certainly looks like the Russians were behind” the use of a nerve agent to attack Sergei Skripal, a former Russian double agent in England. Trump called it “something that should never, ever happen, and we’re taking it very seriously, as I think are many others.”


Russian government hackers since at least March 2016 “have also targeted U.S. government entities and multiple U.S. critical infrastructure sectors, including the energy, nuclear, commercial facilities, water, aviation, and critical manufacturing sectors,” a Treasury Department statement said.

A senior administration told reporters on a conference call that Russian actors infiltrated parts of the U.S. energy sector.

“We were able to identify where they were located within those business systems and remove them from those business systems,” the official said, speaking on condition of anonymity.


Mnuchin said there would be additional sanctions against Russian government officials and oligarchs “for their destabilizing activities.” Mnuchin did not give a time frame for those sanctions, which he said would sever the individuals’ access to the U.S. financial system.

The new sanctions also include Russian intelligence services, the Federal Security Service (FSB) and Main Intelligence Directorate (GRU), and six individuals working on behalf of the GRU.

Thursday’s action blocks all property of those targeted that is subject to U.S. jurisdiction and prohibits American citizens from engaging in transactions with them.

The Treasury Department said the sanctions were also meant to counter destructive cyber attacks including the NotPetya attack that cost billions of dollars in damage across Europe, Asia and the United States. The United States and Britain last month attributed that attack to the Russian military.

Mueller’s indictment stated that Russians adopted false online personas to push divisive messages, traveled to the United States to collect intelligence and staged political rallies while posing as Americans.

Both Republicans and Democrats in the U.S. Congress, which nearly unanimously passed a new sanctions bill against Russia last summer, had criticized Trump for not punishing Moscow. The Trump administration in January did not announce sanctions against Russia, for now, under the new law.

Republican Ed Royce, chairman of the House of Representatives Foreign Affairs Committee, welcomed the new sanctions as an important step. “But more must be done,” Royce said in a statement, promising that his committee would “keep pushing to counter Russian aggression.”

The Treasury Department said it would keep pressure on Russia for its ongoing efforts to destabilize Ukraine and occupy the Crimea region, as well as corruption and human rights abuses.

Reporting by Steve Holland and Doina Chiacu; Additional reporting by Warren Strobel and James Oliphant; Editing by Will Dunham

U.S. ‘woefully unprepared’ for cyber threats, Sen. Mark Warner says

March 11, 2018

  @selenalarsonMarch 10, 2018: 8:27 PM ET

Whether it’s an attack on the banking infrastructure or disinformation campaigns on social media, the United States is “woefully unprepared” to combat cyber attacks and disinformation campaigns, Senator Mark Warner said on Saturday.

Speaking at the SXSW festival, Warner said it’s time to consider the liability of tech platforms and software makers.

Senator Richard M. Burr, right, and Senator Mark Warner, the leaders of the Senate Intelligence Committee. CreditAndrew Harnik/Associated Press

Warner, the top Democrat on the Senate Select Intelligence Committee, outlined a four-part “cyberdoctrine,” actions the government could take to address cybersecurity threats.

He suggested the establishment of basic rules for cyber aggressions, like those in place for nuclear weapons. Warner also called for using the government’s purchasing power to force tech product makers to adopt security standards, and said the United States should reallocate some defense resources into the cyber domain.

“One of the things I want to do is bring together parliamentarians of all the Western nations that have been attacked,” he said. “The West ought to start seeing if we can get some commonality,” around cybersecurity efforts.

Related: Facebook to use postcards in anti-election meddling effort

Cybersecurity is not a partisan issue, Warner said, adding that Republicans and Democrats understand the threats posed by cyber attacks and disinformation campaigns.

Tech companies aren’t doing enough to combat abuse of their platforms for disinformation, Warner said. But he didn’t go so far as to support government regulation.

“If we can do this in a collaborative fashion, I think it would be a better route, but I think Americans’ patience is starting to run thin,” Warner said.

The Russia threat

The Senate Intelligence Committee continues to investigate how Russian hackers interfered in the 2016 election, including the use of Facebook, Twitter and other social platforms to spread fake information and manipulate public opinion.

But Warner said disinformation efforts began long before the presidential election.

“As far back as 2011, I think Russia realized they weren’t going to out-purchase the US in terms of tanks and airplanes, so they had to figure out a way to wage asymmetrical conflict,” he said.

US intelligence agencies have blamed Russia for extensive disinformation campaigns on social media.

Facebook (FB) has estimated that false ads were seen by about 11 million people, while content from accounts linked to a Russian troll group reached an estimated 150 million people on Facebook and Instagram.

Related: How the Russians did it

Special Counsel Robert Mueller indicted 13 Russians and the Internet Research Agency, a Kremlin-linked troll group, for offenses related to their alleged interference in the American political system and the 2016 presidential election.

Facebook has made some efforts to self-regulate and implement new rules on how people can buy political advertising. The company recently said it will verify ad buyers’ identities with physical postcards.

Social networks are facing increased scrutiny from both the government and the public over their power to control and distribute information. Facebook and Twitter have become more transparent about their efforts to fight abuse and let users see if they viewed Russian propaganda, but many, like Warner, are not convinced it is enough.

At Saturday’s event, a Twitter employee asked how the intelligence community can cooperate with tech companies as they work to improve their platforms. Warner, ever critical of tech companies, dodged the question somewhat and said Twitter’s efforts were slow and “derivative of Facebook’s work.”

Erdoğan says anti-Americanism on rise in Turkey

March 10, 2018

Erdoğan says anti-Americanism on rise in Turkey amid bilateral talks to mend tiesAnti-American sentiments in the Turkish public have recently hit the roof because of the U.S.’ support for the People’s Protection Units (YPG) in Syria, the Turkish president has said, amid the two countries’s ongoing talks that aim to ease the severely strained bilateral ties.

“Who will pay the YPG a salary? The United States. When I talk [to the U.S.] about this, they become disturbed. Why are you disturbed? They have been listed in your budget. You have provided them with armored vehicles and weapons,” President Recep Tayyip Erdoğan said in a speech at the Academy of Politics on March 9.

“What kind of allies are we?” asked Erdoğan as he shared his recent conversation with U.S. State Secretary Rex Tillerson in a February meeting in Ankara.

“When I showed him all this on a screen, he complained that ‘anti-Americanism is on the rise in Turkey because you broadcast this sort of information on TVs every day.’ As a matter of fact, anti-Americanism is climbing sharply, though I have nothing to do with it,” Erdoğan said.

Erdoğan’s statements came as a joint Turkish-American committee continued talks in Washington D.C. in a bid to resolve outstanding problems between the two allies. During Tillerson’s visit to Turkey on Feb. 15-16, three mechanisms were established between Ankara and Washington with a view to contributing to normalizing bilateral relations and fixing issues related to Syria, the Fethullahist Terrorist Organization (FETÖ) and Iraq.

The U.S. State Department spokesperson on March 8 said talks between Turkish and American officials had begun in the U.S. capital and many issues would be discussed, including Syria and Turkey’s ongoing Afrin operation.

“Today is the first day that the U.S. government and Turkish officials are meeting to discuss what was agreed to when Secretary [Rex] Tillerson met with his counterpart in Istanbul a couple weeks ago,” Heather Nauert told reporters at a daily press briefing, referring to the first of three technical committees formed to solve issues between the two countries.

“This is an introductory meeting where we can start to hopefully work out some of these issues. As you all know, we have got a lot of issues to discuss. So hopefully, we can make some headway at that level today,” Nauert added.

When asked if Washington was willing to pressure Ankara to stop the Afrin offensive, Nauert said it would not come as a surprise if this issue appeared in the talks.

She also noted that nearly 20 U.S. officials, led by Acting Assistant Secretary Wes Mitchell, attended the meeting and the department plans to release a readout of the meeting’s work tomorrow.

On the Turkish side, Foreign Ministry Deputy Undersecretary Sedat Önal has been presiding over the committee on Syria, Deputy Undersecretary Cihad Erginay on the FETÖ and Fazlı Corman, the director general for South Asia at the Foreign Ministry, on Iraq.

According to Turkish officials, the primary agenda of the Syrian committee is Turkey’s demand to remove the People’s Protection Units (YPG) from Manbij, which lies to the west of the Euphrates River in northern Syria.

The committee on the FETÖ will discuss issues related to the group and also focus on Turkey’s procurement of the S-400 missile system from Russia, migration and visa issues.

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