According to officials, Chinese investments in the U.S. space companies and DoD vendors’ usage of Chinese software are causing anxiety within the Pentagon. Colin Supko, who is the director of the Defense Department’s trusted capital program, stated on September 28 at Space Sector Market Conference, “I will assure you that the supply chain is among the most important things that we are working on right now; within DoD.”
In January, the Department of Defense established the trusted capital initiative in response to worries that China was leveraging its financial muscle to gain access to parts of the defense industrial base that is situated in the U.S. The trusted capital office promotes venture capital firms to be vetted by the Department of Defense so that they can be designated as “clean capital” sources. As billions of dollars stream into the space industry, it becomes more difficult for the government to detect so-called hostile capital.
“Everyone understands that relying on possible adversaries for some of the vital systems and technologies is not in the best interests of the U.S.,” said Supko, a U.S. Navy captain and technology entrepreneur. “I will assure you that the current administration is working hard to address some of those issues, and they have some of the brightest minds working on it,” he said.
According to him, the Department of Defense’s trusted capital office is currently working with upwards of 70 companies and 20 venture firms totaling $1.2 billion in funding. “Our office was created to provide the government with due diligence capabilities. If a startup passes the DoD process, it receives a “warm introduction” to venture capitalists.”
“We attempt to connect entrepreneurs with V.C. funds that understand the value of clean funding,” Supko stated. He said that the Department of Defense has substantial latitude in assessing whether particular sources of capital are legitimate or antagonistic and that a company’s ability to compete for military contracts might be harmed as a result.
The interagency Committee on Foreign Investment in the United States (CFIUS) reviews deals involving foreign corporations that want to merge or buy U.S. companies. CFIUS has the authority to propose that the U.S. government stop a transaction on the national security grounds. According to Supko, the Defense Security Cooperation Agency has the authority to investigate transactions in which a foreign “controlling influence” could be present.
Even if there is no outright purchase, the government may opt to bar a company from bidding for government contracts in the United States on the basis that it receives hostile capital. There are a lot of gray zones there, according to Supko. “We have to be very careful not to give one corporation an advantage over another because having foreign ownership or even specific sorts of influence within a company is not illegal.”