Emerging Challenges in Combating the Evolving Foreign Investment and Influence Threat

The theft of intellectual property from American government agencies, businesses, and academic institutions is a serious, on-going, and growing national security threat. According to former Secretary of Defense Mark Esper, China “is perpetrating the greatest intellectual property theft in human history. Every Chinese company has the potential to be an accomplice in Beijing’s state-sponsored campaign to steal technology.”¹ The independent, bipartisan Commission on the Theft of American Intellectual Property estimates that the economic damage to the U.S. economy incurred by foreign theft of intellectual property totals between $225 billion and $600 billion annually. The Office of the Director of National Intelligence estimated in 2015 that the U.S. suffers $400 billion in economic damage via hacking alone.²

To better understand the impact of foreign investment and economic espionage on our federal government customers, LMI recently attended the American Conference Institute’s 8th Annual National Conference on The Committee on Foreign Investment in the United States (CFIUS) in Washington, DC. CFIUS is a governmental interagency committee charged with reviewing certain transactions involving foreign investment in the United States, including specific real estate transactions by foreign entities, to determine the effect of such transactions on national security. CFIUS officials noted the following challenging areas for committee members and their supporting agencies as global commerce returns to pre-pandemic levels.

Declarations Processing Timeline. Andrew Pahutski, Director of Foreign Investment Review for the Department of Defense (DoD), noted that DoD has by far the biggest caseload of the committee members and, consequently, the biggest strain in meeting time requirements for examining transactions in question. Director Pahutski’s stated issue is a common one throughout DoD and the Intelligence Community (IC)—there is too much data and not enough time or personnel to adequately examine that data.

LMI characterizes this issue as a need to reduce time to value. The LMI Forge™ has created several prototype offerings that augment skilled human analysts with digital capabilities that make experts even more efficient.

Emerging and Foundational Technology. In 2018, Congress passed the Foreign Investment Risk Review Modernization Act (FRMMA), resulting in an emerging and foundational technology list. This dynamic list adds to existing regulatory restrictions on the export or acquisition of technologies considered critical by certain entities to U.S. national security. These technologies are included in transactions specified as “TID”—critical technologies, critical infrastructure, and personal data.

LMI has six decades of expertise in understanding and managing complex supply chain challenges. LMI’s Data Driven Horizon Scanning prototype capability is a user-directed tool for alerting, researching, and compiling information on technology, industry research and development, and “greenfield” investments (start-ups) that may require review by CFIUS.

Increase in Non-Notified Transactions. In addition to having the largest caseload, DoD has the greatest number of “non-notified transactions,” which are those where firms have not provided a voluntary notice. When the Committee determines transactions meet the standards that indicate national security concerns, they may contact the parties directly and potentially open a CFIUS review case. David Jividen, Deputy Director, CFIUS Foreign Investment Review in the Office of Industrial Policy in DoD, and Brian Rohde, Deputy Director of Mitigation for DoD, both noted that DoD is experiencing an exponential increase in non-notified transactions in the Defense portfolio and noted that this increase puts stress on the declarations process via increased staff workload.

LMI’s capabilities and expertise are a natural fit for the Department’s expanding mission to be proactive in sensing potential threats to the Defense Industrial Base (DIB).

Acquisitions Other than Technology. A new challenge for CFIUS is emerging non-technology related acquisitions. Our nation’s adversaries are increasingly merging with or acquiring American firms to advance the accrual of “soft power” capabilities. Examples of this are foreign entity acquisition of media outlets and charter schools, where the foreign entity can accomplish state-sponsored information operations.

LMI’s professionals realized early in 2020 at the onset of the COVID-19 pandemic that Personal Protective Equipment (PPE) and pharmaceuticals, such as blood pressure medicine, would rapidly become national security concerns due to foreign adversaries controlling the means of production. Our ability to recognize non-traditional logistics and supply chain issues and proactively recommend mitigation comports nicely with this new CFIUS area of focus.

Many of the challenges identified during the CFIUS conference are not new to LMI. LMI combines our decades of experience in the IC, unmatched logistics expertise, and cutting edge digital and analytic capabilities to provide unique support to the CFIUS mission. We synthesize our deep knowledge of IC tools, data resources, and tradecraft with our 60+ years of experience conducting due diligence vendor vetting and supply chain risk management and resilience, with our ability to provide data-driven decision support tools that reduce the time to value in resolving cases. LMI’s proven capabilities are tailor-made to address DoD’s most pressing intellectual property protection and supply chain management issues.

¹ Breaking Defense, "Esper Exhorts Allies To Ban Chinese 5G: Britain’s Huawei Dilemma," September 2019.

² Update to the Intellectual Property (IP) Report, 2017.