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Senate report says China targeted Fed Reserve staff for nearly a decade, to build network of informants

July 27, 2022 | | Print Article

(Video Credit: Fox Business)

Republicans on the Senate Homeland Security and Government Affairs Committee have released a report detailing how the Chinese government has allegedly tried to undermine the Federal Reserve for almost a decade through threats, bribery, informants, and spies.

The effort to undermine monetary policy in the United States by China goes back to at least 2013, according to the report that was released on Tuesday.

It delves into the actions of thirteen Federal Reserve employees working across eight of the Fed’s 12 locations identified as the “P-Network,” which was identified in 2015. Their academic backgrounds, combined with foreign travel and interaction with the Chinese are seen as a threat to national security. Four of them still work at the Fed and had “alarming” connections to Chinese state programs and institutions.

The Chinese allegedly offered American economists job prospects, academic positions, and economic and research opportunities in an effort to recruit them as informants and gain access to sensitive data and information at the Federal Reserve.

One of the Fed’s employees was detained by the communist Chinese four separate times during a 2019 trip to Shanghai. Allegedly, Chinese officials “threatened the individual’s family unless the individual provided them with economic information and assistance.”

That was not the only employee to dance with the Chinese. Others allegedly had “close ties” to the People’s Bank of China, Chinese academic organizations, and the state-owned Xinhua News Agency, according to the report.

One of the employees reportedly had “continuous contacts with Chinese nationals” and tried “to transfer large volumes of data from the Federal Reserve to an external site” twice. Another employee transferred “modeling code” to a Chinese University that is linked to China’s central bank.

A Fed employee’s phones, computers, and contact information were also hacked during his trip to China, and Chinese officials copied the contact information of other Federal Reserve officials, the report said.

The Senate committee’s report criticized the Federal Reserve for not doing a better job of policing its own employees, citing a “lack of internal counterintelligence competency at the Federal Reserve or sufficient ongoing cooperation with federal law enforcement and intelligence agencies.”

The report concluded that the Federal Reserve’s inability to stop and counter China’s “long-running and brazen” actions is a threat to national security.

According to a source that spoke with CNBC, the Federal Reserve has been reluctant to implement security measures that could stop some of this, such as reporting foreign contacts. The FBI made 70 recommendations for better security measures and the Fed has implemented only one or possibly two of them, the source claimed.

Federal Reserve Chairman Jerome Powell pushed back against the findings in a letter that he sent to Ohio Sen. Rob Portman, who is the ranking Republican on the Homeland Security Committee, according to Politico.

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

Unfortunately for Powell and the Federal Reserve, the report is not the only indication that government entities are lousy with Chinese spies and informants. Other intelligence agencies and law enforcement officials have become increasingly alarmed at China’s infiltration of U.S. institutions including the Federal Reserve, universities, military agencies, technology, businesses, and infrastructure.

“The Chinese government is set on stealing your technology – whatever it is that makes your industry tick – and using it to undercut your business, and dominate your market,” FBI Director Christopher Wray noted in June. “And they’re set on using every tool at their disposal to do it.”

(Video Credit: CBS News)

Portman urged the Fed to “do more” to protect itself from the Chinese.

“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,” he remarked in a statement. “The risk is clear, I urge the Fed to do more, working with the FBI, to counter this threat from one of our foremost foreign adversaries.”

The report recommended that Congress swiftly enact the Safeguarding American Innovation Act (SAIA), which will “protect American taxpayer-funded economic and financial research and intellectual property from foreign threats.”

In response to the Senate report, Liu Pengyu, who is a spokesperson for the Chinese embassy in Washington, commented on Monday that U.S. lawmakers’ remarks are “full of Cold War zero-sum thinking and ideological prejudice.”

“The cooperation between China and the U.S. in economic, financial, and other fields is open and aboveboard, which has played an important role in enhancing mutual understanding and mutual trust between the two countries. The U.S. should take off its colored glasses and stop disrupting local and non-governmental exchanges between the two countries,” Liu asserted, according to Politico.

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