China Exploiting Holes In US Bankruptcy Law to Buy Defense Technology and Avoid Controls

China Exploiting Holes In US Bankruptcy System to Acquire National Security Technology (excerpt)

When lithium-ion battery manufacturer A123 Systems experienced financial trouble, it did what many struggling companies do to stay afloat and arranged to sell off a stake in the firm. But when Congress raised concerns, the Chinese buyer pulled out, waited for A123 Systems to file for bankruptcy, and purchased the assets at auction — conveniently avoiding a national security review by the U.S. government.

Wanxiang Group Corporation made that move in 2017, but China has been acquiring sensitive national security technologies through similar bankruptcy exploitation for years, and the U.S. judicial system isn't properly equipped to handle the problem, according to intellectual property attorney Camille Stewart, a member of the Foundation for Defense of Democracies' Transformative Cyber Innovation Lab.

"[T]he judiciary traditionally has not felt like part of the national security apparatus and has not operated as such," Stewart told the Washington Examiner. "And we're seeing there is an opportunity here for the judiciary to close the gap."

Business acquisitions involving national security technologies that could be used by a foreign government are reviewed by the interagency Committee on Foreign Investment in the United States. But Chinese companies can skirt this review by buying up an American company's assets in bankruptcy proceedings.

With these technologies in hand, China can not only increase its own capacities but damage those of the United States. (end of excerpt)

Click here for the full story, on the Washington Examiner website.

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