Federal Reserve, Senate Republicans clash over Chinese influence claims

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Minority staff of the Senate Homeland Security and Governmental Affairs Committee released a report Tuesday morning detailing five ‘case studies’ of individuals whose conduct and ties to Chinese academic and state institutions are described as a potential concern. . Individual employees — four of whom are current employees, according to a committee aide — are not identified by name.

The report also reveals for the first time that a 2015 Federal Reserve counterintelligence analysis identified 13 “persons of interest” working for the bank who investigators say raised troubling concerns about their ties to the Chinese government.

But the Fed is now challenging its own 2015 findings, the committee said, arguing that its initial analysis drew conclusions about Fed employees “that may lack factual evidence” and ultimately could not be substantiated.

And Federal Reserve Chairman Jerome Powell pushed back against the report’s findings in a forceful letter Monday to senior committee Republican Sen. Rob Portman of Ohio.

“We are deeply troubled by what we believe to be the report’s unfair, unsubstantiated and unverified insinuations about particular staff members,” Powell wrote.

Republican committee staff based the report’s findings on 2015 counterintelligence analysis and a classified FBI report detailing the threat, according to a GOP committee aide. The FBI did not respond to a request for comment.

The ultimately murky nature of the report’s findings hints at some of the difficulties that federal authorities have had in separating espionage from legitimate relations between Chinese and American universities and businesses.

Many of the people named in the report were identified based on their ties to Chinese entities that investigators consider potentially problematic, including Chinese academic organizations associated with China’s so-called Thousand Talents program – a lucrative recruitment effort. Overseas Chinese who became a priority for the Justice Department under the Trump administration as it sought to uncover US-based scholars who might steal research or other intellectual property.

But amid allegations of xenophobia, racial profiling and executive overreach — and after some of its high-profile lawsuits failed — the Biden administration this year ended the investigative initiative that focused on Thousand Talents.

According to the Senate report, Federal Reserve officials told the committee earlier this month that in 2015 the Fed was “concerned … about the organized efforts of foreign governments, some of which had economic and strategic interests.” at odds with those in the United States, to solicit Federal Reserve researchers, usually by asking them to enter into paid contractual relationships.” At the time, Fed investigators called the 13 “persons of interest — who worked at eight of the 12 Federal Reserve Banks — the “P-Network.”

Although the Fed now disputes “many of its own prior findings,” according to the report, Republicans on the committee believe emails, travel itineraries and employment contracts support the original counterintelligence analysis. of the Fed in 2015.

A spokesperson for the Chinese Embassy in Washington condemned the report’s findings in a statement on Monday.

“The remarks of concerned US congressmen are full of zero-sum thinking and Cold War ideological biases,” Liu Pengyu said. “The cooperation between China and the United States in economic, financial and other fields is open and frank. The United States must remove its colored glasses and stop disrupting local and non-governmental exchanges between the two countries.

The results

The Senate committee’s minority report asserts that “China has used various tactics to recruit US-based economists to provide China with knowledge and intellectual capital in exchange for monetary gain and other benefits.”

Even so, the committee’s Republican investigators say the Fed has since failed to adequately combat the threat it identified in 2015, in part due to poor coordination with law enforcement and federal intelligence agencies and in part through “a lack of internal counterintelligence expertise”. ”

In his letter to Portman, Powell also pushed back against those claims.

“We … have implemented strong policies, safeguards and controls to safeguard all confidential and sensitive information and to ensure the integrity of our workforce,” Powell wrote. “We are confident that Federal Reserve personnel understand their obligations and are committed to maintaining both the confidentiality of sensitive information and the integrity of our personnel.”

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According to the panel’s minority, the Federal Reserve began banning its employees from accepting any compensation from China or other countries of concern after the panel raised concerns.

“However, the Federal Reserve still has limited approval requirements for international collaborations or prohibitions on participating in a talent recruiting plan,” the Republicans committee wrote.

“If left unchecked, these loopholes continue to provide an open avenue for China to disrupt the integrity of the U.S. financial system, putting U.S. national security at risk.”

Powell argued that international collaboration is an important — and encouraged — part of the Fed’s mission, “with the goal of deepening and broadening our understanding of critical issues.”

“We encourage and support staff participation in multilateral organizations and sponsor conferences with other central banks,” he wrote, adding that “information security considerations also shape this engagement.”

The five “case studies”

The report details the interactions of five Fed employees.

In one case, a Federal Reserve employee was allegedly forcibly detained four times during a trip to Shanghai in 2019. According to the report, “Chinese officials threatened the individual’s family unless the individual provided them with economic information and assistance, tapped the employee’s phones and computers, and copied the contact information of other Federal Reserve officials from the individual’s WeChat account.” These officials then allegedly threatened the employee with imprisonment in an effort to get him to sign a letter stating that he would not discuss the interactions with anyone.

On two of the four occasions, according to the report, Chinese officials questioned the employee about his position at the bank and told him “he must cooperate with the Chinese government and share non-public sensitive economic data to which he has access. inasmuch as [Federal Reserve] economist” and “senior adviser [Chinese] government officials on sensitive economic issues.

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Federal Reserve officials told committee staff that they reported the incident to the FBI and the State Department after being alerted by the employee, but “neither the FBI nor the State Department ‘advised the Federal Reserve on what to do to prevent and mitigate these incidents in the future. CNN has contacted the FBI and the State Department for comment.

In 2019, the Fed finally issued a general warning to all economists preparing to visit China, according to the report.

Another employee “with sensitive access to Federal Reserve Board data provided modeling code to a Chinese university with ties to” China’s central bank in 2018, according to the report. The report alleges that the person has “long-standing ties” to China’s central bank, encouraged the Federal Reserve Bank where he works to deepen its relationship with the People’s Bank of China, and used WeChat to communicate directly with investors. central bank officials to coordinate visits and help “develop predictive models.”

“These and other measures taken by [this employee] because of these relationships raise concerns about real or apparent foreign influence,” the report said.

This person “maintains access to sensitive data [Federal Reserve Bank] information” in his current role as a “great economist,” the report notes.

Yet a third employee was “observed communicating with the Chinese State Council-affiliated research center [and] assist Chinese government news agencies with publications,” according to the report. Federal Reserve public affairs officials have been kept out, Senate investigators said.

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One of the five employees is no longer employed at the Fed, but the report does not reveal the circumstances of the person’s departure. The report only states that the employee “had close ties with Chinese universities known to be active in talent recruitment plans” and that the person’s browsing history “showed particular interest in Chinese President Xi Jinping. , as well as articles relating to individuals arrested for economic reasons”. spying.” According to the report, a keystroke capture showed the employee was using “Xijinping as the website password.”

Yet another employee — not one of the five cases detailed in the report — “attempted to transfer large volumes of Federal Reserve data to an external site in at least two separate instances,” according to the report.

CNN’s Matt Egan contributed to this report.

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