‘Adversarial capital’ remains a threat to defense industrial base, DOD leader warns

As the pandemic continues to ravage the economy, adversaries are still investing in U.S. companies in order to harm the military’s industrial base, DOD’s top acquisition official warned industry Thursday.

Ellen Lord, the undersecretary for acquisition and sustainment, said that “adversarial capital” — investments from rival nations in U.S. companies that could block the DOD from working with them for national security reasons — is a threat that continues to worry her after initial warnings at the beginning of the pandemic. Lord previously also warned companies that already work with the DOD against taking money linked to foreign adversaries.

Technology companies should be especially wary, given the central role dual-use technology will play in the future of warfare. China has been aggressive in IP theft and collection, government officials have said. If young companies in need of cash take money from foreign adversaries, it limits DOD’s options to work with them at a time the department has made it a priority to collaborate with startups and nontraditional contractors.

Lord said that she wants stronger collaboration with allied nations and industry groups to fend off money from nefarious sources.

“They have bought critical national assets, whether that be in terms of intellectual property or whether that be technology development,” she said, speaking at a virtual event at the Hudson Institute. “When we work with our partners and allies that’s an even stronger position” to stop the investments.

Lord said DOD has the ability to “unwind” investments it deems to be too risky, but said that allies need to “come together” to help ensure compliance with regulations on financial transactions. Working with other nations is critical because adversarial countries, like China, will often try to hide the origins of its money by investing from shell companies.

“Our adversaries are pretty smart, and they can often go to another country and have a shell organization,” she said.

DOD has tried to increase the cash flow to some startups to keep them afloat and not put them in a position where they are in desperate need of money. Programs like the Trusted Capital Marketplace, which give seed to young companies, is one way the government is trying to stay ahead of adversaries with deep pockets.