China targeted the Fed for more than a decade, Senate report finds

“China’s targeting of Federal Reserve officials appears rarely aimed at fostering legitimate collaboration, business arrangements, or research exchanges,” reads the report led by Sen. Rob Portman (R-Ohio). “Rather, China’s efforts seem aimed at malicious, undisclosed, and illegal transfers of information that seek to undermine the United States.”

In a letter to Portman cited by the Wall Street Journal, Fed Chair Jerome H. Powell acknowledged that some people might try to exploit the Fed’s vulnerabilities, but rejected assertions that a lack of rigor on the Fed’s part gave China an opening.

“Because we understand that some actors aim to exploit any vulnerabilities, our processes, controls, and technology are robust and updated regularly. We respectfully reject any suggestions to the contrary,” Powell wrote.

The report is based on a Federal Reserve counterintelligence analysis and related FBI investigation. Those inquiries found 13 people, representing eight of the 12 Federal Reserve Banks, with connections to known Chinese talent recruitment programs known as the “P-Network.”

The report spelled out an aggressive campaign to elicit confidential information. One unnamed Fed employee was detained in Shanghai four times during a 2019 trip, during which Chinese officials threatened his family, told him his phone was being monitored and pressed him to sign a nondisclosure agreement.

In the first meeting, the worker was accused of crimes against China and ordered to “say good things about China” while in the United States. In a later meeting, officials plied him with liquor and told him he would have to “give economic advice about the Chinese and global economy” in regular meetings on future visits. The incident was reported to the FBI, according to the report.

In other cases, the Chinese government appeared to exploit long-standing academic research collaborations to gain access to sensitive information, the report said.

Several Fed employees were found to have ties to China’s central bank, while others maintained close contacts with university-centered talent recruitment programs. Another U.S. employee corresponded with Chinese state-owned media.

It’s unclear whether the campaign yielded useful information, but there are indications that some Fed employees may have attempted to cooperate with Chinese authorities.

One Fed employee, who had access to Federal Reserve Board data, provided statistical modeling code to a Chinese University with ties to China’s central bank. Another repeatedly attempted to transfer “large volumes” of unspecified data to an external website.

One of the Fed employees attempted to cover their tracks by switching to different communications channels and changing email names after being confronted about suspicious activity. An analysis of this person’s browsing history showed searches for articles about economic espionage. This individual’s website password: “xijinping,” the general secretary of China’s Communist Party.