Yahoo Finance US Urges Vigilance by Tech Startups, VC Firms on Foreign Funds
(Bloomberg) -- The US is warning homegrown tech startups and venture capital firms that some foreign investments may be fronts for hostile nations seeking data and technology for their governments or to undermine American businesses.
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Several US intelligence agencies are spotlighting the concern in a joint bulletin Wednesday to small businesses, trade associations and others associated with the venture capital community, according to the National Counterintelligence and Security Center.
“Unfortunately our adversaries continue to exploit early-stage investments in US startups to take their sensitive data,” said Michael Casey, director of the NCSC. “These actions threaten US economic and national security and can directly lead to the failure of these companies.”
Washington has ramped up scrutiny of investments related to countries it considers adversaries, most notably China, as advanced technologies with breakthrough commercial potential, such as artificial intelligence, can also be used to enhance military or espionage capabilities.
President Joe Biden’s administration has sought to clamp down on China’s ability to develop advanced semiconductors and AI, as well as access to large amounts of Americans’ personal data. It also aims to restrict outbound US investment in sensitive industries in China.
The NCSC collaborated on the bulletin with the Director of National Intelligence’s economic security and emerging technology unit and the Air Force and Navy criminal investigative units.
Small tech companies and venture capitalists “are not in a position to assess the national security implications of their investments,” said Mark Montgomery, former executive director of the Cyberspace Solarium Commission, which was assigned to develop a US cybersecurity strategy. “There are way too many examples where what appears to be, at best, potentially only dual-use or non-military-use technology is quickly twisted and used as a national security tool.”
Suspicious firms may “structure their investments to avoid scrutiny” during reviews by the Committee on Foreign Investment in the US, the interagency body that probes deals for national security risks.
CFIUS, which is led by the Treasury Department, said Tuesday in its latest annual report that it “continues to confront a complex national security landscape and significant caseload,” referring to transactions where the country of origin is known.
The bulletin Wednesday, however, is focused on deals where the buyer’s ultimate origin is unclear. It warned of funding sources with complex ownership “often incorporated in offshore locations lacking transparency and effective regulatory oversight” or foreign investors that route investment through funds, partners or intermediaries.
“This tactic can help foreign threat actors avoid or complicate outside scrutiny through degrees of separation,” it said.
One investor recently accused by the US of being a national security threat is IDG Capital, a prolific private equity and venture capital firm that the Pentagon said early this year is linked to the Chinese military, an accusation it has denied.
Earlier: US Accuses Chinese Memory Chipmaker, AI Firms of Aiding PLA
The bulletin also warned startups that they could be denied US government contracts or funding “if foreign threat actors gain a foothold in their firms.” They could also be influenced to make decisions that benefit “foreign threat actors at the expense of the US”
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