The U.S. Department of Justice’s (DOJ) China Initiative, launched on Nov. 1, 2018, was designed to identify, investigate, and counter threats to U.S. national security posed by China. The announcement marked a broader change by the Trump Administration in enforcement actions against Chinese companies and individuals. More specifically, the China Initiative was meant to address threats to U.S. national security arising from the unlawful (and lawful) transfer of U.S. intellectual property — especially technology — via economic espionage, hacking, theft of trade secrets, and other unlawful actions. While many of the ten points under the Initiative were not new, the focus of a criminal justice and enforcement initiative on a single country was unprecedented, and many argue this directly led to some of the failings of the Initiative that came later.
Under the Initiative’s umbrella, DOJ initiated more than 75 cases, accusing defendants of a variety of crimes including fraud, economic espionage, trade secret theft, and corruption. However, contrary to China Initiative’s stated purpose, only around 30% of the cases involved allegations against “PRC government agents,” while many others instead targeted professors, engineers, and other professionals who retained ties to Chinese companies or academic institutions while working in the United States. An investigation conducted by the MIT Technology Review in December 2021 pointed out that the China Initiative had deviated from its original purpose of preventing illicit technology transfer to China, and instead increasingly focused on individual academics and researchers of Chinese descent in cases involving no allegation of theft or illicit transfer of intellectual property. These individual prosecutions raised widespread public skepticism about the Initiative’s effectiveness and actual purpose, with some critics suggesting that the China Initiative was tantamount to blatant racial profiling and reflected bias within the U.S. Government against Asian-Americans and Chinese nationals. Some compared the China Initiative to notorious racist episodes such as the Chinese Exclusion Act of 1882, the mistreatment of Japanese-Americans during World War II, and McCarthyism.
Among all these doubts, the critiques from academia have been especially fierce. As of June 2021, DOJ has brought 23 criminal cases against university professors and researchers, only two of whom were accused of economic espionage. The remainder were prosecuted for not disclosing their connections with Chinese academic institutions or other entities on certain application materials submitted for U.S. government funding. As an example, DOJ accused Anming Hu, an associate professor at the University of Tennessee at Knoxville, of hiding his interactions with Beijing University of Technology when he sought government funding for a nanotechnology project funded by NASA. After the trial began in February 2020, DOJ posted Hu’s case on its website as a victory for the China Initiative, and Hu was subsequently fired by the University of Tennessee. In September 2021 though, Hu was acquitted of all charges. “There was no evidence presented that the defendant ever collaborated with a Chinese university in conducting NASA-funded research, or used facilities, equipment or funds from a Chinese university in the course of such research,” wrote Judge Thomas A. Varlan in his opinion, which held that no rational jury could find Hu guilty and set Hu free.
Hu’s case is not an exception. China Initiative cases frequently ended in failure and its focus has been sharply criticized by university faculties and Asian-American advocates as ensnaring innocent researchers in investigations and prosecutions that damage both individual reputations as well as academic and scientific collaboration between the two countries. In September 2021, a group of 177 Stanford faculty members sent an open letter to U.S. Attorney General Merrick B. Garland calling for an end to the China Initiative because it had disproportionately targeted researchers of Chinese origin. Indeed, if proven, this alone would raise constitutional issues in all China Initiative cases.
After widespread criticism and repeated failures in court, DOJ announced in November 2021 that it would conduct an internal review of the China Initiative. Soon after, 20 China Initiative cases were abruptly removed from the DOJ website without explanation. On February 23, 2022, Assistant Attorney General Matthew Olsen, the new head of the DOJ National Security Division, announced that the China Initiative was “not the right approach” to counter U.S. national security threats, adding that the failed cases created an “absolutely unacceptable” perception that the government applies undue scrutiny to people who are ethnically Chinese or have ties to the PRC.
With the end of the China Initiative, AAG Olsen announced a new Nation-State Threats Strategy as an alternative approach to address threats from not just one nation, but rather from a range of countries to include China, Russia, Iran, and North Korea. The new Nation-State Threats Strategy will be informed by three strategic imperatives:
1. Defend core national security interests and protect sensitive information and resources. DOJ will continue to investigate and prosecute espionage, export control and sanctions violations, and interference with U.S. critical infrastructure.
2. Protect U.S. economic security and prosperity, including key technologies, private information about Americans, and supply chains.
3. Defend U.S. democratic institutions and values.
To achieve these goals, the DOJ will take several actions, including:
1.DOJ will use all the legal tools to investigate and prosecute crimes sponsored by hostile governments and their agents. This includes prosecuting state agents for espionage, hacking campaigns against our government and the private sector, and the repression of critics, as well as efforts to manipulate public discourse in the U.S.
2.In addition to the criminal enforcement, DOJ will apply civil and administrative tools to mitigate threats from foreign investment activity and foreign interests that seek to secretly influence public opinion in the U.S.
3.DOJ will support broader whole-of-government efforts — which include diplomatic engagement, the use of economic tools, and resilience building in communities within the United States and abroad — to address these threats.
It is worth noting that the end of the controversial China Initiative will not be the end of U.S. enforcement actions focused on Chinese individuals and companies. Far from it. The new Nation-Threat Strategy still regards “the PRC threats” as “more brazen and more damaging than ever before.” AAG Olsen maintains that the PRC government and its agents remain a long-term law enforcement priority, accusing the PRC government of threatening U.S. security through espionage, theft of trade secrets, malicious cyber activity, transnational repression, and other tactics.
Many of the enforcement trends seen in the past five years involving China will continue and perhaps even expand. Compared to the China Initiative, which focused on protecting intellectual property and trade secrets, the nascent Nation-State Threat Strategy significantly expands its enforcement scope to broader economic and ideological interests. Although the Nation-Threat Strategy is alleged to be focused on the actions of the PRC (and other governments) and their agents — not persons of Chinese citizenship or Chinese descent — employees of government-owned companies and scholars from PRC universities have often been accused of being agents of the Chinese government. Moreover, in the past few years, the U.S. government has used many government tools outside of criminal prosecution, for example by adding many Chinese companies to various restrictions lists, such as the Entity List, on the grounds that U.S. interests are being threatened. Chinese companies and individuals on these sanctions and export control lists could face additional scrutiny from U.S. enforcement officials and be considered as potential enforcement targets of the Nation-Threat Strategy. Considering DOJ’s previous mistakes in the China Initiative, other Chinese companies or Chinese citizens, even those with no ties to the PRC government, could be falsely targeted for various types of enforcement actions as the Nation-Threat Strategy expands and develops.
On the other hand, the China Initiative mainly used criminal prosecution as law enforcement tool, while the Nation-State Threat Strategy would have a broader and more powerful arsenal of law enforcement tools. Another trend of the past few years that will continue is joint U.S. law enforcement actions across multiple federal agencies (e.g., Treasury, Commerce, DOJ etc.) and across multiple jurisdictions both inside the U.S. and globally. This redoubled emphasis is in line with the Biden Administration’s policy focus, which has repeatedly emphasized the importance of strengthening interdepartmental and intergovernmental collaboration in anti-corruption and other law enforcement areas. Key Administration officials have stated on multiple occasions that, to maximize U.S. interests and the effect of U.S. enforcement actions, the U.S. government will use diplomatic tools to drive U.S. allies to cooperate with the U.S. enforcement actions. As the Nation-State Threat Strategy includes economic and diplomatic tools in its enforcement toolbox, the U.S. government will have the ability to attack potential threats from wider perspectives and in more regions, which will bring greater risks to China and Chinese companies. Arguably, this approach will be more effective than the old China Initiative under the Trump Administration which often acted unilaterally and without any form of global coordination. Now, Chinese companies targeted by the U.S. can expect a much greater likelihood that they will simultaneously face similar restrictions and enforcement from the EU, the U.K., and even Asia-Pacific allies of the U.S. This trend of global coordination is of course a key piece of the sanctions imposed by so many nations against Russia in recent weeks.
Because of the recent Russia-Ukraine war, NATO member countries are to some extent shifting their attention to Russia. It is foreseeable that Russia and its associated entities will be the first targets under the Nation-State Threat Strategy. As the U.S. government has repeatedly warned, it is highly concerned that Chinese entities will help Russia to evade sanctions. If a Chinese entity or person with U.S. ties is found to have aided actions to evade U.S. sanctions, the U.S. government may criminally prosecute not only the companies, but also may target individuals deemed to have been responsible and directly involved. This may include a Chinese company that simply imports products of U.S. origin or clears a U.S. dollar transaction via a U.S. correspondence bank. As the Ukraine situation intensifies, the U.S. government is reportedly watching very closely those non-U.S. entities that continue interacting with parts of the Russian economy that have been sanctioned by the United States, or deal in those U.S. exports that have been banned from Russia. Chinese companies are surely no stranger to the various measures the U.S. government has adopted to enforce its sanctions and export control programs, given the high-profile enforcement against ZTE and Huawei, as well as the aborted extradition of Meng Wanzhou, in relation to their alleged roles in violations of Iran sanctions.
In the current stage of U.S. sanctions against Russia, the enforcement focus has already been directed at companies related to the Russian supply chain. According to the Russia Foreign-Direct Product Rules issued by the U.S. Department of Commerce on Feb. 24, any party with the “knowledge” that a foreign-produced item being produced with U.S. content will ultimately be reexported to Russia, may be punished if done without an exporting license administrated by U.S. Commerce Department’s Bureau of Industry and Security; the focus is on whether the item is a “direct product” of restricted U.S. software and technology or produced by a complete plant or “major component” of a plant that itself is the “direct product” of such U.S.-origin technology or software. Given the expected focus on Russia and Russia-related entities, Chinese entities should evaluate very carefully their potential risks regarding their Russian-related businesses.
There is a broad consensus among U.S. politicians that China is and will be the greatest threat to long-term U.S. interests, and the Russia-Ukraine war will not reverse the current PRC-centric enforcement trend in the U.S. This will cross multiple regulatory regimes in the U.S. government, including a review by the Committee on Foreign Investment in the United States of Chinese inbound investment, evolving export controls on technology, sanctions enforcement, and strict enforcement of any violations of these regimes. Even Chinese companies without Russian-related business must not relax their vigilance. Indeed, there may be little change except for the re-focus on Chinese companies and company executives rather than individual professors and researchers. And the enforcement actions taken now may be ultimately much more effective and damaging for the targets due to the multilateral and targeted approach of this Administration as described above. The Nation-State Threat regime continues to target China as an enforcement priority alongside other nations, but not so prominently as to cause constitutional and societal skepticism within the U.S. In conclusion, Chinese individuals and entities with ties to the U.S. should take advantage of the short breathing space as one initiative dies but another comes to life and take precautions to prevent future risks. As the old saying in the United States goes, “the more things change, the more they stay the same.”
Wade Weems, a former prosecutor with the U.S. Department of Justice, and Chang Liu are both lawyers specializing in government enforcement defense from Kobre & Kim LLP, a global law firm with exclusive focus on international disputes and investigations. Kairu Huang is a specialist analyst at Kobre & Kim LLP.
The views and opinions expressed in this opinion section are those of the authors and do not necessarily reflect the editorial positions of Caixin Media.
If you would like to write an opinion for Caixin Global, please send your ideas or finished opinions to our email: opinionen@caixin.com
Get our weekly free Must-Read newsletter.
