Investigation Reveals China Targeted Federal Reserve as Economic Espionage

The Federal Reserve has been repeatedly targeted by the Chinese government as part of a large-scale economic espionage effort, according to a Republican investigator.

Sen. Rob Portman (R-OH) released a minority staff report for the Homeland Security and Governmental Affairs Committee that details how the Federal Reserve System has been targeted by Beijing. The FBI has repeatedly warned about China’s Thousand Talents economic espionage program.

“A Federal Reserve counterintelligence analysis identified 13 persons of interest as having connections with known Chinese talent recruitment plan members or ‘having similar patterns of activity the [Federal Reserve] analysts deemed’ of potential concern,” the new report says. “Federal Reserve investigators dubbed these individuals, representing no fewer than 8 of the 12 Federal Reserve Banks, as the P-Network.”

The Senate report said the actions of those individuals and their connections to Chinese talent programs are “alarming” and provide “stark examples of the ways in which the Chinese Government has attempted to gain access to sensitive internal information and influence” the Fed.

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“I am concerned by the threat to the Fed and hope our investigation, which is based on the Fed’s own documents and corresponds with assessments and recommendations made by the FBI, wakes the Fed up to the broad threat from China to our monetary policy,” Portman told the Washington Examiner. “The risk is clear. I urge the FBI and the Fed to do more to counter this threat from one of our foremost foreign adversaries.”

Jerome Powell, chairman of the Federal Reserve, sent a letter obtained by the Washington Examiner back to Portman to express “strong concerns about assertions” in his report.

“We would be concerned about any supportable allegation of wrongdoing, whatever the source,” Powell wrote. “In contrast, we are troubled by what we believe to be the report’s unfair, unsubstantiated, and unverified insinuations about particular individual staff members.”

The Senate report provided five “case studies” on Fed employees targeted by or involved with China, and a committee aide noted that “four of the five are still at banks.”

The new investigation “reveals that China has also targeted the Federal Reserve to undermine American economic and monetary policy since at least 2013” and “shows how China has used a variety of tactics to recruit U.S.-based economists to provide China with knowledge and intellectual capital in exchange for monetary gain and other benefits.”

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Chinese officials “forcibly detained one Federal Reserve Bank employee on four separate occasions during a 2019 trip to Shanghai” and “threatened the individual’s family unless the individual provided them with economic information and assistance, allegedly tapped the employee’s phones and computers, and copied the contact information of other Federal Reserve officials from the individual’s WeChat account,” according to the report.

The investigation also “found multiple U.S. Federal Reserve employees with close ties to the People’s Bank of China,” while one Federal Reserve bank employee held a position in 2017 with the Chinese central bank, which was meant for “overseas, top performing talent with directly applicable, advanced modeling experience, and insight with China and U.S. economic monetary policy.”

“One Federal Reserve Bank employee with sensitive access to Federal Reserve Board data provided modeling code to a Chinese university with ties to PBOC,” the report says. “Another Federal Reserve Bank employee attempted to transfer large volumes of data from the Federal Reserve to an external site in at least two separate instances. The individual had continuous contacts with Chinese nationals and universities associated with talent recruitment programs as well as access to sensitive datasets ‘considered of high value to an adversary’ and had previously received a request from an individual with ties to the Chinese Government for non-public information.”

Portman concluded in his report that there has been a lack of competency at the Fed, which China has sought to take advantage of.

“Despite these long-running and brazen actions by Chinese officials and certain Federal Reserve employees, the investigation found the Federal Reverse unable to counter this threat effectively,” Portman said. “Compounding this was a lack of internal counterintelligence competency at the Federal Reserve or sufficient ongoing cooperation with Federal law enforcement and intelligence agencies.”

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Director of National Intelligence Avril Haines said in March that the Chinese government remains the “absolutely unparalleled” long-term priority for the U.S. intelligence community.

“We consistently see that it’s the Chinese government that poses the biggest long-term threat to our economic and national security, and by ‘our,’ I mean both of our nations,” FBI Director Christopher Wray said during a July speech in London alongside the United Kingdom’s MI5 director general, Ken McCallum.