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ANALYSIS: China Rises as U.S. Domestic Law Enforcement Concern

Nov. 16, 2020, 10:10 AM

The Department of Justice’s initiative to combat Chinese espionage and influence in the U.S., initially focused on theft of intellectual property, expanded its reach in 2020. U.S. organizations that have dealings with China will have to take this escalation into account in 2021 and beyond.

Law enforcement’s significant role in the developing international rivalry between the U.S. and China has been evident since 2018, when U.S. criminal charges led to the arrest of Huawei CFO Meng Wanzhou in Canada and the DOJ announced its China Initiative to combat theft of U.S. intellectual property. In 2020, federal law enforcement announced actions against Chinese espionage and influence in the U.S. that send new warnings to Americans with dealings in China or with Chinese nationals. These warnings should be heeded because the policies behind them will continue after the transition from the Trump Administration to the Biden Administration.

The China Initiative in 2020

The China Initiative revealed cases that grew increasingly broad in scope in 2020. In 2018–19, most China Initiative prosecutions addressed the first priority in the initiative’s 2018 announcement: theft of trade secrets. In 2020, most cases have addressed the next-highest priorities announced in 2018: to develop an enforcement strategy against “non-traditional collectors (e.g. researchers in labs, universities, and the defense industrial base) that are being coopted into transferring technology contrary to U.S. interests,” and to “educate colleges and universities about potential threats of academic freedom and open discourse from influence efforts on campus.”

The January arrests and indictments of Harvard University professor Charles Lieber and two Chinese nationals — a cancer cell researcher and a former Boston University student — were the first high-profile cases involving “non-traditional collectors” at universities and laboratories. Numerous similar cases have been announced as the year has unfolded. This line of investigations and prosecutions should concern any U.S. university or laboratory that has ties to institutions in China or employs nationals of China, as well as professors, researchers, and administrators responsible for these connections to China.

Direct Impact on U.S.–China Relations

In mid-2020, the China Initiative had a direct impact on U.S.–China relations when the U.S. Department of State ordered China to close its consulate in Houston. Chinese espionage and influence activities based in the Houston consulate, predominantly intellectual property theft, were the main reason for the State Department’s order to close the consulate in July. The discovery of these activities was a result of the DOJ’s China Initiative investigations, and in recognition of this interagency cooperation, the DOJ led the State Department’s briefing on the closure of the consulate.

The official explanation of the reasons for closing the consulate also cited activities other than intellectual property theft. They included consulate support for teams sent from China to the U.S. to coerce the return of fugitives — called Operation Fox Hunt — and involvement in lobbying of state and local officials and businesspeople. These activities have also been subjects of DOJ scrutiny.

Hunting Operation Fox Hunt

Operation Fox Hunt is a Chinese government program that since 2014 has sent agents to other countries to coerce the return to China of persons who fled abroad, complemented since 2015 by an expanded program called Operation Skynet (named after a passage in the Tao Te Ching, not the artificial intelligence in the Terminator movies). China declared Operation Fox Hunt to be an international anti-corruption campaign to find criminals who fled justice in China, but Operation Fox Hunt has also targeted citizens of China living overseas as dissidents and critics of the Communist Party.

In October, the DOJ announced a major action against Operation Fox Hunt after a multi-year FBI investigation, unveiling criminal charges against eight individuals who had worked as agents of Operation Fox Hunt from 2016 to 2019. The criminal charges and the identities of the defendants were noteworthy in the criminal complaint filed by the U.S. Attorney for the Eastern District of New York. All eight defendants were charged with acting as an illegal agent of a foreign government, under 18 U.S.C. § 371, and they included citizens of China, a naturalized U.S. citizen from China, and a U.S. citizen not of Chinese descent who, as a licensed private detective, was hired to assist Operation Fox Hunt.

Illegal Foreign Agents and More in 2021 and Beyond

Operation Fox Hunt is only one form of acting as an illegal agent of the government of China that the DOJ has declared that it is targeting. Among the original goals of the China Initiative was to “Apply the Foreign Agents Registration Act to unregistered agents seeking to advance China’s political agenda, bringing enforcement actions when appropriate.” The DOJ stated in July that Chinese lobbying of state and local officials and business people was a major concern in the closure of China’s Houston consulate, and it is likely that related investigations are in progress, possibly to result in prosecutions in the future.

A common thread of these 2020 actions is that all have enforced long-standing U.S. statutes and policies, not policies unique to the current administration that are subjects of partisan political debate. There is strong bipartisan support for additional China Initiative goals affecting the interests of Chinese and U.S. companies, such as strengthening the DOJ role in the Committee of Foreign Investment in the United States (CFIUS) by implementing the Foreign Investment Risk Review Modernization Act (FIRRMA), and identifying Foreign Corrupt Practices Act (FCPA) cases “involving Chinese companies that compete with American businesses.”

As a result, the China Initiative and related DOJ actions are likely to have ongoing influence on U.S. actions toward China, regardless of any differences in policies toward China between the Trump Administration and the incoming Biden Administration. Their findings are likely to influence U.S. law enforcement actions toward Chinese interests and U.S. persons and companies involved with them for years to come.

Access additional analyses from our Bloomberg Law 2021 series here, including pieces covering trends in Litigation, Transactions & Markets, the Future of the Legal Industry, and ESG.

Bloomberg Law subscribers can find related content on our In Focus: China Initiative, In Focus: CFIUS, and In Focus: Foreign Corrupt Practices Act (FCPA) resources.

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