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China trying to recruit spies inside US Federal Reserve, says GOP senator

The Federal Reserve headquarters in Washington, DC. (Dan Smith/Wikimedia Commons)
July 26, 2022

The Chinese government has been trying to recruit people inside the U.S. Federal Reserve system to become spies for China, according to a new report by the Republican members of the Senate Homeland Security and Governmental Affairs Committee this week.

Sen. Rob Portman (R-OH), the ranking member on the Senate Homeland Security Committee, published a new report detailing China’s malign efforts “to target, influence, and undermine the U.S. Federal Reserve.” According to a press release announcing the report, China has used “a variety of tactics” in a “malign influence and information theft campaign” against the Federal Reserve for over a decade.

Federal Reserve Chairman Jerome Powell has disputed the allegations raised in Portman’s report.

Portman said his report details five selected cases in which China tried to gain influence and access to the Federal Reserve, which controls U.S. monetary policy.

In one case, a Federal Reserve employee was allegedly detained four different times while traveling in China with his family. Chinese officials reportedly threatened him and his family with imprisonment if he did not turn over information.

In other cases, Portman’s report said multiple Federal Reserve employees maintain close ties to Chinese academic organizations that are affiliated with the Thousand Talents Program, which seeks to find and recruit people with high-level skills from around the world.

In yet another case, a Federal Reserve employee reportedly interacted with officials from China’s Xinhua News Agency, which serves as an official press agency of the Chinese government.

Portman alleged recruitment efforts had even gotten so far in at least one case that when confronted about suspicious activity, a Federal Reserve employee resorted to “adversarial tradecraft” including switching to different, unmonitored communications channels and changing emails.

Additionally, Portman said the Federal Reserve has been unable to counter the malign Chinese influence campaign, lacks proper policies and procedures sufficient to prevent many Chinese influence efforts, and that Federal Reserve employees with known ties to Chinese talent recruitment programs still retain full access to confidential information within the Federal Reserve.

“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 said Tuesday. “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.”

Powell disputed Portman’s report in a statement on Tuesday.

“We are deeply troubled by what we believe to be the report’s unfair, unsubstantiated, and unverified insinuations about particular individual staff members,” Powell said in response to the new allegations, CNN reported.

Powell insisted the Federal Reserve has “robust policies, protections, and controls in place to safeguard all confidential and sensitive information and to ensure the integrity of our workforce.”

“We are confident that Federal Reserve staff understand their obligations and are committed to maintaining both the confidentiality of sensitive information and the integrity of our workforce,” Powell added.

Powell also defended some level of interaction between Federal Reserve employees and foreign organizations, arguing that international collaboration serves the Federal Reserve’s monetary policy mission by broadening the central banking entity’s understanding of economic issues.

“We encourage and support staff participation in multilateral organizations, and sponsor conferences together with other central banks,” Powell said.

According to the Wall Street Journal, Portman’s report draws heavily from a separate 2015 internal investigation by the Federal Reserve, which identified 13 people of interest, known as the “P-Network,” who were employed at eight of the 12 regional Federal Reserve banks. A member of the network who was former Federal Reserve employee or employee, identified as “Z,” had ties with the Chinese government and reportedly “expressed a desire to maintain an inside information sharing relationship” within the Federal Reserve. The Federal Reserve now disputes some of the findings of this 2015 internal investigation.