In May, I introduced legislation to temporarily restrict acquisitions of U.S. companies and assets by the People’s Republic of China (H.R. 6706). The legislation was largely in response to discussions about so-called predatory investments by the Chinese government and China’s propensity to act most aggressively when its enemies are most vulnerable. As soon as tomorrow, yet another American company with sensitive intellectual property may be purchased by individuals with troubling and opaque connections to Chinese officials and even former officials of the Chinese Communist Party, or CCP.
This is just one example of a disturbing trend that is happening across this nation as companies and Americans continue to struggle amid the COVID-19 pandemic, and a key example for why Congress must pass H.R. 6706.
In this time of unprecedented financial distress, particularly in the aviation sector, not all companies can survive. Some turn to bankruptcy proceedings or buyers who are interested in distressed and discounted assets — allowing the buyer at hand to purchase all assets and IP the company owns. While this may seem harmless at face value, it presents an opportunity for buyers with ulterior motives to step in and acquire sensitive IP for pennies on the dollar.
For a buyer with unlimited funds — such as an entity supported by the CCP — this scenario is a dream. And yes, even companies with potential or realized Chinese ties may be approved by the Committee on Foreign Investment in the United States, or CFIUS, to purchase the assets (and sensitive IP) from struggling U.S. companies.
The White House did reform the CFIUS process in 2018 to allow the president to block questionable transactions (via the Foreign Investment Risk Review Modernization Act). However, small transactions continue to slip through the cracks and go unnoticed.
The latest case of this unfortunate trend is happening as this is written, in a Delaware-based bankruptcy court, to Eclipse Aerospace — a small aerospace company based in Albuquerque, New Mexico, that employs 65 people.
The company produces “very light jets” that are used for intelligence, surveillance and reconnaissance, among other military uses. The U.S. Air Force once considered using the aircraft for ISR or training, which Congress supported, and multiple military forces across the world have used the plane for similar roles. The plane also contains sophisticated avionics, engines (originally designed for cruise missiles), and a full authority digital engine control system that all contain sensitive national security design information.
Currently, the highest bidder for Eclipse Aerospace appears to be Citiking International, a Chinese-backed private equity firm with offices around the world and possible ties to the CCP via the Aviation Industry Corporation of China, otherwise known as AVIC. A recent report (which is cited here as a PDF file given that Chinese authorities have presumably blocked U.S. access to the website) indicates Citiking would likely relocate Eclipse’s operations to China and acquire Eclipse’s highly sensitive technology and intellectual property in the process — providing a direct transfer of sensitive IP from the U.S. to the CCP.
More troubling is that the engines on the Eclipse aircraft were developed for cruise missiles and today must comply with the Missile Technology Control Regime.
The loss of American jobs during a pandemic and the direct transfer of sensitive IP to China would create a one-two punch scenario that should make every American queasy. Even if Citiking never intends to share Eclipse’s IP with the CCP, the potential loss of American jobs to China is itself unacceptable during these times of economic hardship.
The bankruptcy court in Delaware is scheduled to approve Citiking’s purchase of Eclipse’s assets and sensitive IP on Nov. 20. This sort of transfer of technology and IP has become a serious concern for the Trump administration, as demonstrated by Executive Order 13959, which restricts U.S. investments in CCP companies, including AVIC. Yet, it seems the current transaction has indeed slipped through the cracks and garnered an inappropriate stamp of approval from CFIUS.
Citiking’s impending purchase of Eclipse Aerospace and its sensitive IP should serve as a lesson: Congress needs to develop tighter rules to require CFIUS to disapprove these sorts of transactions, even if there’s only the appearance of impropriety or Chinese influence. Avoiding this approach — as is the case now — allows Chinese-backed firms to hire high-priced lawyers to win CFIUS approvals, all while the American public is none the wiser and critical technologies continue to slip into China’s hands. This is no longer acceptable, and it presents grave national security risks for this nation.
While Citiking’s purchase of Eclipse warrants closer inspection by CFIUS and the White House, the deal also represents a broader trend of IP transfer to the CCP that must be addressed and halted. China is working tirelessly to control U.S. assets, and Congress must recognize this threat now by passing my bill (H.R. 6706) to halt these types of risky transactions.
Rep. Jim Banks, R-Ind., serves on the House Armed Services Committee and co-chairs its Future of Defense Task Force. He also currently serves in the U.S. Navy Reserve.