Commentary on Political Economy

Sunday, 19 April 2020

Senate Panel Seeks Scrutiny of China Telecom Companies After It Sees Lax U.S. Oversight

Subcommittee finds that without proper supervision, the Chinese firms’ U.S. operations pose an unacceptable risk to national security

A forthcoming report will criticize a group of telecom regulators for failing to scrutinize Chinese companies and the way they handle data.

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An influential Senate panel is calling for stricter oversight of Chinese telecommunications companies operating in the U.S., after an investigation found years of weak supervision by regulators threatens national security.
In a forthcoming report, the Senate Permanent Subcommittee on Investigations will level sharp criticism at a group of telecom regulators for failing to scrutinize the Chinese companies and the way they handle data going back nearly two decades. Senate investigators who briefed The Wall Street Journal on their findings said that without proper oversight the Chinese companies “present an unacceptable amount of risk.”
The group of regulators—which is composed of national security officials from several agencies—is known as Team Telecom and is charged with maintaining the integrity of telecommunications infrastructure. Members of the group said they are aware of the panel’s findings that, they said, support efforts already under way to overhaul oversight of the Chinese businesses.
In recent weeks, Team Telecom has sought to root out Chinese links to U.S. telecom infrastructure. In public filings, the team recommended revoking state-owned carrier China Telecom Corp. ’s license to operate in the U.S. and suggested that Beijing’s tighter control over Hong Kong means the Chinese territory is no longer a secure landing point for U.S. internet cables.
The more aggressive U.S. stance is likely to accelerate the global march toward a bifurcated internet, with China and the U.S. each fighting for spheres of influence and accusing the other of exploiting technology for espionage. The U.S. government has mounted a global campaign to shun Chinese telecom equipment giant Huawei Technologies Co. In China, U.S. carriers are already effectively barred from getting licenses to operate, and the Chinese government heavily censors internet content, especially from foreign sources.
Representatives for American carriers warned the Senate investigators that the U.S. moves could cause Beijing to retaliate by cutting off their business with Chinese carriers to provide services. That, the carriers have said, would potentially hurt their customers in China, such as U.S. companies, and hinder the carriers’ ability to cooperate with U.S. intelligence-gathering requests.
U.S. national-security officials say the risks of allowing Chinese access to U.S. telecommunications infrastructure outweigh any potential benefits of intelligence collection.
“The time for silently watching Chinese state enterprises get a trusted toehold in our critical telecommunications infrastructure has ended,” said Adam S. Hickey, a Justice Department official involved in Team Telecom. “We need the private sector, which controls so much of that critical infrastructure, to make similar decisions.”
The Chinese embassy didn’t respond to a request for comment. Beijing has said that China is a victim of cyberspying and that each country has a right to set rules for the internet.
The Senate panel, led by Sens. Rob Portman (R., Ohio) and Tom Carper (D., Del.), criticizes Team Telecom for raising no concerns in its vetting of China Telecom and fellow state-run giant China Unicom for licenses they won in 2002 to operate in the U.S. The panel also finds fault with oversight of smaller companies ComNet (USA) LLC and Pacific Networks Corp., which are owned by the Chinese government investment firm Citic Group Corp.
Team Telecom, which is led by the Justice Department and includes the departments of Defense and Homeland Security, still has no risk-mitigation agreement with China Unicom, though it has the authority to enact one, Senate investigators noted. Team Telecom uses such agreements to provide additional oversight of companies believed to present national security threats.
Representatives for China Unicom’s U.S. unit and for ComNet and Pacific Networks each said their firms have always complied with U.S. laws and regulations.
While a risk-mitigation agreement with China Telecom in 2007 gave Team Telecom the authority to make site visits, it only did so twice, in 2017 and 2018, said Senate investigators. They expressed concerns about how China Telecom holds, manages and routes U.S. data, noting that the carrier once held U.S. customer data in mainland China and that it currently stores some of it in Hong Kong.
Team Telecom, in its April 9 request to the Federal Communications Commission to revoke China Telecom’s U.S. unit’s licenses, noted the national-security environment has changed. In 2007, terrorism was the top concern, the filing says. In 2019, it says, cyber issues top the Office of the Director of National Intelligence’s world-wide threat assessment, and “China is the first country identified by name for its persistent economic espionage and growing threat to core military and critical infrastructure systems.”
Team Telecom said in the filing that China Telecom’s state ownership invited Chinese government interference. It also accused the company of making inaccurate statements to officials about where it stores U.S. records and said it disrupted and misrouted internet traffic. China Telecom called the move unprecedented and denied the allegations.

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