Rise of Investments in National Security, Tech Demands Attention

A recent commitment by JPMorgan Chase reflects how the US now views the intersection of finance, technology, and national defense. This convergence demands investor attention as the sectors attracting capital are those most susceptible to fraud.

The company announced in October a $1.5 trillion security and resiliency initiative, which includes $10 billion in equity investments in supply chain and advanced manufacturing, defense and aerospace, energy independence, and frontier technologies.

Amazon.com Inc. executive chairman Jeff Bezos and former US Secretary of State Condoleezza Rice are among a group of business leaders, politicians, and generals advising JPMorgan on the initiative, the company announced on Dec. 8.

This move marked the culmination of President Donald Trump’s America First Investment Policy, which, regarding investments in semiconductors, artificial intelligence, quantum computing, and biotechnology, established expedited approval for allies while restricting access for adversaries, particularly China and Russia.

The urgency stems from China’s military-civil fusion strategy and weaponization of rare earth minerals: China now requires approval to export any product containing 0.1% Chinese-origin rare earth material. Russia’s war in Ukraine also exposed global defense industrial vulnerabilities.

As billions of dollars flood into national security and critical technology sectors, the consequences of inadequate due diligence extend beyond investment loss. Misrepresentation can compromise national security, fraud can undermine defense capabilities, and failure can attract aggressive government enforcement.

The government will pursue companies that misrepresent their capabilities in national security contexts, as shown by the July 2025 False Claims Act settlements for cybersecurity vulnerabilities. The need for rigorous investigations and due diligence has never been greater.

Among other steps, investors committing capital must verify claims about supply chain independence, technology ownership and freedom from foreign dependencies, as well as scrutinize executive backgrounds, potential foreign ties, and procedures designed to detect insider threats.

Supply Chain Issues

Some companies, challenged by supply chain integrity, claim domestic sourcing while relying on hidden foreign dependencies.

Others maintain undisclosed relationships with foreign technology providers, employ fraudulent origin certifications, and violate export controls. A defense contractor touting “Made in America” components may buy them from suppliers dependent on Chinese rare earth material.

Due diligence must include verification of source documentation, financial analysis to identify unusual dependencies, physical audits of supplier facilities, and total supply chain mapping. Companies should scrutinize foreign entity contracts, examine supplier ties to foreign governments, and verify alternative supplier availability.

Ownership, Investment Concerns

Defense tech startups frequently employ complex ownership structures that can obscure beneficial ownership and the participation of foreign interests.

Some examples include shell companies that hold equity, nominee shareholders that conceal the identity of ultimate owners, and layered offshore entities that obscure foreign capital sources. These may violate Committee on Foreign Investment in the United States requirements or indicate foreign intelligence interest.

For investments in the 27 priority sub-sectors—from nanomaterials to quantum computing—CFIUS considerations are paramount. Investors must determine whether foreign persons access material non-public technical information, control board seats, or influence technology development. Even minority investment by certain countries triggers mandatory CFIUS declarations.

Concealed ownership investigations require corporate registry searches in various jurisdictions, analysis of complex ownership chains, examination of voting agreements that don’t appear in capitalization tables, and interviews to identify funding sources.

Companies should highlight inconsistencies between represented ownership and actual control, unusual investor privacy requirements, and reluctance to name the ultimate beneficial owners.

Vetting Management Teams

Executives require enhanced scrutiny. Résumé fraud is common: Executives claim unearned degrees, exaggerate roles, or fabricate security clearances. Most concerning are undisclosed foreign ties, such as previous foreign entity employment, financial relationships with foreign nationals or governments, family members in sensitive foreign positions, or unreported adversary nation travel.

Security clearance verification extends beyond simple confirmation. It must encompass whether clearances are appropriate and remain current, and how such clearances might be compromised.

Best practices include comprehensive background investigations in which credentials are verified and previous business relationships examined, supplemented by interviews of former colleagues and financial analyses that might reveal conflicts. It’s not uncommon for contracts to be compromised and investor capital lost by executives who misrepresented credentials or concealed foreign business interests.

Detecting Insider Threats

Foreign intelligence services will exploit financial or ideological motivations when targeting employees of venture-backed defense tech companies who have access to sensitive technology and foreign family ties.

Investors should evaluate personnel security measures, determining whether companies monitor suspicious behavior and conduct and update background investigations. “Red flags” include high turnover in sensitive positions, inadequate personnel screening, weak cybersecurity controls, and resistance to adopting security protocols.

Foreign Intelligence Interests

Foreign intelligence services target defense tech startups. Detection requires understanding their methodologies, including investment approaches by entities with unknown backgrounds or foreign government connections, partnership proposals requiring technology sharing and recruitment attempts through seemingly legitimate job offers, and intellectual property theft through cyber intrusions.

Suspicious patterns include sudden interest in defense technology by investors with minimal tech history, terms that require technology transfers, and due diligence that seeks detailed technical information. Companies should implement protocols to protect sensitive technology during investor presentations, limit technical disclosures to only vetted investors, and monitor data room access.

Companies should determine whether companies have experienced suspicious approaches, received unusual partnership proposals, or suffered cybersecurity incidents that suggest foreign intelligence interest. Building intelligence capabilities within investment teams—including by adding former government personnel with counterintelligence experience—enhances threat detection.

Post-Investment Monitoring

Unlike traditional sectors, where due diligence ends at closing, national security investments demand ongoing compliance monitoring. This includes quarterly security reviews, continuous supply chain integrity evaluation, regular personnel background updates, monitoring of foreign contacts and travel by executives with access to sensitive technology, and cybersecurity assessments to identify potential breaches.

Post-closure “red flags” include unexpected ownership structure changes, foreign partnerships not disclosed during due diligence, security incidents that affect key personnel, and compliance violations.

Moving Forward

JPMorgan’s $1.5 trillion commitment validates the national security investment framework and likely catalyzes broader market participation. The sector promises enormous opportunities but creates fertile ground for catastrophic due diligence failures.

The investors who succeed will couple strategic vision with ruthless verification, recognizing that trust must be earned through evidence and due diligence is a continuous process. These investors understand that, in national security investments, what you don’t know can compromise not just returns, but national interests.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

David Raskin is a managing director at the global investigations firm Nardello & Co. and former senior counsel to the assistant attorney general for national security.

Amie Chang is also a managing director at Nardello & Co. and a former intelligence analyst for the US Department of Defense and political officer with the US Department of State.

Write for Us: Author Guidelines