WASHINGTON — The Pentagon’s top acquisition official is worried that adversary nations may use the economic downturn caused by the new coronavirus pandemic to buy out American-made technologies.

During a Wednesday news conference, Ellen Lord warned that it “is critically important that we understand that during this crisis, the [defense-industrial base] is vulnerable to adversarial capital, so we need to ensure that companies can stay in business without losing their technology.”

The Pentagon over the last several years has become increasingly vocal about concerns that foreign nations — primarily China — are investing in U.S. startup companies whose technologies could have national security applications. Those startups have been willing to accept Chinese funds in exchange for Beijing having ownership or access to certain technologies.

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Several times the officials were asked if there is a specific threat they are seeing from foreign investment at this moment, but both Lord and Jen Santos, deputy assistant secretary of defense for industrial policy, spoke only in general terms.

“I think it presents a greater attack surface, if you will, as there is uncertainty especially with small businesses as to whether their contracts will continue,” Lord said of the current pandemic. “To basically mitigate that uncertainty, that’s why we’re being forward-leaning and over-communicating, probably, to say: ‘We are open.’ ”

Trae Stephens, a partner in the venture capital Founders Fund and a co-founder of Anduril Technologies, says China will “probably” try to take advantage of the economic downturn.

“The funding environment in the U.S., particularly without an articulated plan beyond ‘day-to-day,’ will not be great for companies getting squeezed, and there will likely be good opportunities for China to swoop in and save the day,” he said, adding that the Defense Department’s instinct to focus on supporting the major defense primes first may exacerbate the problem.

“If this happens, it will be because of ‘wagon-circling,’ and we’ll only have ourselves to blame,” he warned.

The Pentagon has attempted to counter Chinese economic influence in two primary ways. The first is the use of the Committee on Foreign Investment in the United States, or CFIUS, which a defensive tool that allows the government to block a foreign investment attempt on national security grounds. The second, still in the early stages, is the Trusted Capital Marketplace program, which seeks to find “patriotic investors” who will put money toward supporting companies that fill a gap identified by the department, such as small unmanned systems.

Over the past few weeks, two trusted capital events were hosted virtually, said Santos, who also indicated a concern that the CFIUS office may be impacted by the coronavirus outbreak, without going into detail.

“To protect our industrial base, we have tools to combat adversarial capital, like strengthening and expanding national security investment reviews under the Committee on Foreign Investment in the United States, referred to as CFIUS, [and those tools] are more important than ever,” she said. “We simply cannot afford to let this period of uncertainty eat into reviews that for investments are shifting into hyper-vigilance.”

About Aaron Mehta and Valerie Insinna

Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.

Valerie Insinna is Defense News' air warfare reporter. She previously worked the Navy/congressional beats for Defense Daily, which followed almost three years as a staff writer for National Defense Magazine. Prior to that, she worked as an editorial assistant for the Tokyo Shimbun’s Washington bureau.

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