LIVE: Senate Homeland Security Committee Holds Hearing to Examine Conflicts of Interest in Federal C

Thank you, Senator. I am concerned about the possibility that if the legislation were written in such a way or contracting guidelines were scoped in such a way that companies could find loopholes, then that would be disastrous for us. not just from the Department of Defense, but a number of U.S. government agencies. So I want that balance to be in a more conservative direction. Those subpoenas sought information on the relationship between these companies and the Saudi Arabian government's attempts to influence U.S. policy. While refusing to comply with our subpoenas, these companies chose to follow a ruling from a Saudi court rather than follow U.S. law. It is outrageous that these companies, and let's be clear, they are American companies. They benefit from being able to be based in the United States with all the privileges and opportunities that that brings to citizens and to businesses. It is outrageous that they are putting profiting off of their deals with the Saudis over protecting the national security interests of the United States. Simply put, if you want to contract with the U.S. government, the world's largest buyer of goods and services, then at a bare minimum, you need to comply with U.S. law, which includes complying with subpoenas from Congress. I think you've put your finger, Senator, on the complexities of multinational companies and doing business with many countries at the same time. I do not have a significant amount of faith that the FAR Council, who is involved with very talented people, could come to an exact solution for that precise problem. But I think you've put your finger also on the fact that this is what occurs when you have contractors encountering these competing interests. You have to basically – I mean, there's a reason that you named the bill Time to Choose, right? And so I think this is one of the inherent problems with empowering this type of activity. And I think it's why, as the FAR Council continues to hopefully and more speedily consider these issues, it will come down with some more guidance about what a contracting official should be considering. But, B, I'm not sure I would empower a contracting official to speak directly to the issue that you raised. But I do agree with you that if companies want to benefit from doing business with the United States or benefit from doing business at all in the United States, that this needs to become a priority. Thank you very much. I really appreciate all of you. And thank you, Mr. Chair. Thank you, Senator Hassell. Dr. Doshi, in your testimony, you specified concerns with a U.S. federal contractor providing similar services to an entity with ties to the Chinese Communist Party. My question for you is, do these concerns also apply where a U.S. federal contractor provides services to another foreign government entity besides China? Thank you, Senator. I think they could apply to foreign governments that have an adversarial relationship with the United States. What differentiates China from – let me take a step back, Senator. A lot of companies are going to be involved in conflicts of interest by the fact that they are involved in multiple jurisdictions. What makes China different from other countries is that this is a country that is planning for a conflict with the United States, that is taking American intellectual property, that is working to compromise our critical infrastructure. So here, the stakes of those conflicts are so much higher than they are in other cases, including Saudi Arabia or the United Arab Emirates. This is a fundamentally different magnitude of harm. So, Senator, I agree that this could apply to other governments. It's just that the Chinese government is the one that I'm most concerned about. Well, so I want to build on that. You wrote in your testimony about what you call the China cycle, where the Chinese government tilts the playing field in their favor when contracting with companies that are based here in the United States. They're also tilting the playing field in their favor in the electric and autonomous vehicle market by heavily, heavily subsidizing their electric vehicles in that industry and flooding foreign markets with these highly subsidized vehicles. So my question for you, Dr. Doshi, is besides imposing tariffs or similar measures like that, what else can we do to level the playing field or tilt the field back? Well, thank you for that question, Senator, and maybe I'll spend a moment briefly on the China cycle. The idea here is that multinational companies or U.S. companies are attracted by the lure of China's market. It makes sense. They try to do well in China. Maybe they do well for a period of time. But China has a goal, an industrial policy goal, to indigenize those companies and push them out of China after a period of time. And even our best companies in China have met this fate. Take Apple. They spent decades building China's smartphone industry. They spent billions on building China's machine tools industry. And now its various suppliers have essentially risen in the supply chain to become producers of smartphones. They've pushed Apple essentially to below top five in market share in China. Take Tesla as well. It's a similar story. Tesla did very well in China, had a good arrangement with the Shanghai government. But its supply chain in China that it built helped catalyze some of the innovation that helped China's electric vehicle manufacturers outcompete Tesla in Europe and potentially down the road in the United States. To answer your specific question, Senator, about what we can do to tilt the playing field on EVs, I mentioned just a few points. First, I would note that a lot of companies in China, 90 percent of the top 500 enterprises, have Chinese Communist Party cells within them that are involved in the governance of those companies. So strict independence between those companies and the Chinese government is very difficult to imagine. We can't mirror image. It's a different system than ours. The second point, Senator, that I would make is that tariffs really aren't going to get the job done. They're important. They're an important step. But the problem that we face is rules of origin. These countries, China can partner with other countries to make these same EVs in Mexico or Indonesia or elsewhere. So we really need our regulatory solutions. What the Biden administration has recently done, as of yesterday, is move forward with an approach that would say for software or hardware that goes into these Internet-connected vehicles, if that's from China, then it can't be sold in the United States. It's for a very simple reason, Senator. Automotive, you know, Internet-connected vehicles are a form of critical infrastructure. And we know that the Chinese are trying to compromise U.S. critical infrastructure in power, in water, in telecommunications, and in transportation. It stands to reason we should worry about that possibility in EVs as well. So this regulatory approach is easier to coordinate with allies and partners. It's actually something the executives can do pretty quickly. And I think it's actually more effective than tariffs alone. Another question for you, Dr. Oshii, is another important factor we must consider when we aggressively combat the China cycle, as you call it, are what the potential impacts on the American scientific and technological competitiveness would be if we overly restrict U.S. collaborations with foreign entities on basic research, for example. The question for you is, what are the consequences of overreach there, and how can we prevent overreach? Well, thank you for that question, Senator. And I think nothing that I've advocated today would dramatically tamp down on trade with China, nor would it necessarily compromise our ability to work with China in science and technology. Those are both important. We are just trying to put guardrails in place so that we can be done more safely and effectively. That said, the United States currently has a science and technology agreement with China that's been in place since normalization. It's lapsed at times and been renewed. One of the biggest challenges we face, Senator, is that the ecosystem in the United States is very open. Anybody can access it. But the ecosystem in China is very closed, so we don't have symmetry. We have an asymmetry here. What that means in practical terms is that China can benefit more from our ecosystem than we can from theirs. Right now, the legislation in China on national security that I outlined in my testimony makes it very difficult for us to continue with scientific research because we can't get our data out. One of the biggest sticking points to renewing the science and technology agreement has been the question of whether we can come to some kind of agreement with China on questions related to data. What I would say, Senator, is that what we're talking about here in Time to Choose won't affect science and technology cooperation. If anything, it might give us another piece of leverage, another angle, which we can use to pry open China's approach on national security to make it a bit more symmetrical with our own. I think that's where we want to end up because China is an innovative country. It's not just stealing American technology. Its science and technology ecosystem is quite advanced. We need to have some exchange with it. We have to make sure it's done in a way that's fair. Final question, I'm going to ask Dean Tilleman and Dr. Oshian. We'll start with you, Dean. Should the federal contracts that we have include specific restrictions and penalties around sharing information and data with non-U.S. government clients related to work that's being done for the United States government? Dean Tilleman first, and then Dr. Oshian will wrap it up. Yes, resoundingly yes, absolutely. It's one thing for a contracting officer to learn about a potential conflict of interest and to consider whether it needs to mitigate, avoid, neutralize that particular conflict of interest. It's another thing for a contractor to share the information that they've obtained during the performance of a contractor, particularly with an adversarial government. Even just sharing the basic information is problematic, so yes, there should be extreme penalties for something like that. Frankly, we already have some systems for the disclosure of this type of information in existence, but what you're describing absolutely should be banned. Thank you. Dr. Oshian. Senator, I couldn't agree more that this is a critically important element of any kind of protection we want to implement here. Right now, we know that there's three ways in which China can compromise any data that might be within China. First, there's institutions it's putting in companies. These include Chinese Communist Party cells. Second, there's the requirement that any employee of a U.S. subsidiary that's from China or, quite frankly, any Chinese partner of that subsidiary has to comply with PRC intelligence and has to make sure that that compliance is never reported. That is an actual legal requirement of the counterespionage law from the National Security Law 2017. Third, of course, as I mentioned, access to network data encryption is all transparent now under the existing regulatory regime in China. You've got to turn over your encryption keys to the Chinese government. Which means that the question of whether or not this kind of sensitive information gained from working with the U.S. government or with U.S. companies, that must be protected. And it can't be used in fulfillment of contracts with the Chinese government. It probably shouldn't be migrated to China because once it is, it's theirs. Well, I'd like to thank our witnesses for joining us here today to share their testimony and their expertise with the committee. Congress and the entire federal government must work together to ensure government contracts are awarded in the best interest of the American people by removing conflicts of interest from contractors' work. Americans certainly deserve full assurance that when their tax dollars are spent on federal contracts, they get the result that benefits them. And not have those funds go to contractors who are working on both sides of the issue in a way that undermines our national security interest. And I look forward to our continued work together on this issue. The record for this hearing will remain open for 15 days until 5 p.m. on Wednesday, October 9th of 2024. For the submission of statements and questions for the record, this hearing is now adjourned.