A guy deep in the Defense Department is actually doing something about Chinese theft of US intellectual property

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It’s become an unfunny joke. No matter what crucial intellectual property gets developed in the United States, it gets stolen by China or maybe Russia. A special team deep in the Defense Department has been working on one strategy to counteract this. It looks for investments in U.S. companies by suspicious foreigners. For his work collaborating with many other agencies, the team leader is a finalist in this year’s Service to America Medals program. The deputy director of the Office of Foreign Investment Review at DoD, David Rader joined the Federal Drive with Tom Temin.

Interview transcript:

Tom Temin: Mr. Rader, good to have you on.

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David Rader: Hi, thanks so much for having me. Good to be here.

Tom Temin: So tell us about the Office of Foreign Investment Review and what you do on that team how the whole thing works.

David Rader: Yeah, you bet. Foreign Investment Review or FIR as we call it, large part is the CFIUS Office. That’s the Committee on Foreign Investment in the United States. That’s a very narrow kind of structure, regulatory process. But what we’ve discovered is a lot of things that pose threats to national security fall outside of CFIUS itself. And so I built a team of data scientists and economists, lawyers, former program managers and project officers, if you will, to really look at sticky national security issues in the financial and economic domain, that are kind of non-traditional, but pose a great risk to us.

Tom Temin: And you say financial and economic domain that are non traditional, maybe explain that a little bit more.

David Rader: Yeah, traditionally, the department or national security apparatus is writ large, never look at economics as a function of warfighting or a warfighting domain, or an area of exploitation is generally viewed as something kind of separate. And so taking that approach or using that lens to look at transactions and what that means for national security is a primary focus of ours.

Tom Temin: And do you focus on investments in technology companies or potential suppliers to the Defense Department? Or do you look at the economy in a larger sense?

David Rader: Yeah, it’s an unfair answer, but it’s everything. So we look at macroeconomic data to kind of see where the market’s moving directionally, then we’ll look at specific transactions to your point and emerging critical or disruptive technologies, all the way to core military systems that you’re used to protecting. But the world is shifting and civil and military fusion is occurring around the world, both organically and inorganically. And so semiconductors and thrusters and rockets, and lasers, you know, for cutting in factories, or materials are all playing a role in national security and our defense platforms.

Tom Temin: So you’re looking for transactions, then that would indicate someone that we don’t want investing in one of these companies investing in it?

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David Rader: Exactly. And relationships. And you know, some of our adversaries are pretty clever, they use some obfuscated ownership or opaque structures to extract technology and try to replicate it or just take it overseas. So joint ventures, their relationships with academia, there’s a lot of ways to go about it. And so we kind of look at everything.

Tom Temin: Fascinating, and what are your sources of data, you say, transactions and who might be behind them, and so forth? How do you ingest the information you need? And where does it come from to do the analytics?

David Rader: Yeah. And so we’re really an aggregator in that sense. So we use our commercial sources, the typical subscription kind of products, news, open source, or OSINT, the intelligence community is a great ally, and partner, the interagency partners, so other governments, you know, will call and say, hey, we heard about this, or have you seen this. And then lastly, is commercial partners. We even have commercial partners, and we do a lot of industry engagement. And that’s one of the best sources for us to understand where the market is going, who’s creating what and with whom they’re interacting.

Tom Temin: And what happens when you find something suspicious, say someone via a shell company in Great Britain, who’s actually Russian invests in Hypersonics-R-Us, for example, that’s doing work with AFWERX?

David Rader: Yeah, so that’s where the secret sauce is made up of various methods, but we tried to pull them into the CFIUS framework, that’s probably the easiest and most well structured, we have some cool authorities and capabilities elsewhere within government that allow us to really, you know, have a meaningful conversation and address the threat.

Tom Temin: Do you find that sometimes the companies themselves don’t realize that they’ve been invested in by people with bad intent?

David Rader: You know, I’d argue that’s probably 50% of the time, I think, you know, companies are really focused on developing their product making money, they might not understand that to your point that Canadian or British shell is actually something else. And then a lot of them don’t understand how they fit into something like made in China 2025. China does a very good job of telegraphing, or, you know, explaining to its people what it’s going after. And so they might say biotech or hypersonics. And so companies, you understand that, you know, we might make a widget and biotech that we don’t think matters for national security. But if China or Russia is looking for it, you’re in our orbit, you’re part of the game now.

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Tom Temin: So basically, you’re looking for people that would take our property from the front door and not the back door.

David Rader: Yeah, I mean, we do look at the whole value chain, if you will, but I think that’s a good way to frame it. I mean, it seems like we’re doing all the work. We’re spending the money. We’re doing the research, development, test evaluation, you know, commercializing the product, and then the bad guy show up the last day, take it and get to steal all of our hard work and we’re getting pretty tired of it, I think.

Tom Temin:
Right. What I’m driving at is that they could become a board member or an investor and just simply have access to the information that way, as opposed to hacking in.

David Rader: Oh, absolutely. Yep, board membership, investor relations, accessing data rooms through what seems like normal business transactions or a joint venture. So yeah, they’ll come through the front door 100%.

Tom Temin: We’re speaking with David Rader. He’s deputy director of the Office of Foreign Investment Review at the Defense Department, and a finalist in this year’s Service to America Medals Program. And the category in which you’re a finalist is emerging leaders, which is to say, younger people coming into government, you’re in your mid-30s. What in your background got you to this point, and what attracted you to federal service?

David Rader: I used to be in the Army in a previous life as an infantry man, and you know, had a great experience, all my best friends remained in the business. And so when I stepped away, I went to investment banking at JP Morgan. And I was a M&A consultant at Ernst and Young. And so I enjoyed learning the commercial skills necessary. But I really missed that mission to service. When the opportunity presented itself, I was quick to jump on it because we’re at a critical time right now, where we need to better understand the commercial side and have better relationships and training. But also the Defense Department and national security in general in the U.S. government need really good dedicated public servants who are trying to bring in that next generation, and I was happy to be part of the team.

Tom Temin: Did you get to the Army via enlistment? Or were you a ROTC? Or what was that path?

David Rader: Enlisted right out of high school.

Tom Temin: I’ll be darned. So you’ve had JP Morgan and Ernst and Young level salaries in your short career, and now you’ve got a decent, but it’s a pentagon salary. What effect is that had?

David Rader: There’s some personal adjustments that had to be made.

Tom Temin: But you’re committed to it, it sounds like?

David Rader: Yeah, absolutely. It’s the best place I’ve ever worked. Seen such a diverse group of people from all over the country, you know, kind of all over the world come here to solve really meaningful problems to watch over, you know, America, or investors or innovators, our people. It’s a cliche, but it’s one it’s like, it gets you out of bed in the morning. I really enjoy it. And I have the best boss in the world and great colleagues. So that even makes it easier.

Tom Temin: Yes. And are there any examples of things you’ve uncovered that you might be able to tell us about?

David Rader: Well, sadly, we weren’t quite on the quiet side of the business. There’s quite a few. But I mean, everything that you can imagine where maybe sometimes deals don’t go through or some of the things you’ll read in the headlines. Some, one of us is around there poking around.

Tom Temin: Got it. By the way, you mentioned some of the other DoD and intelligence community elements that you collaborate with. What about the Securities and Exchange Commission, for example, or some of the civil side of government? Is that also part of the CFIUS apparatus?

David Rader: Yeah, absolutely. We’ve expanded the scope, because we’ve realized, you know, if you’re looking at economics, it’s ridiculous to not involve the Securities Exchange Commission. I mean, they’re their regulators for the markets, if you will, the Federal Aviation Administration, the FCC, communication, I mean, kind of the whole panacea of government. We’ve had just excellent partners every time we pick up the phone and say, we have an issue, you know, we think it kind of fits into your authority bucket. But you know, we’d like to collaborate and find a solution for our country. They’ve always said, yeah, come on over. Or, you know, we’ll be there on Monday, and it’s gone really well.

Tom Temin: David Rader is deputy director of the Office of Foreign Investment Review at the Defense Department, and a finalist in this year’s Service to America Medals Program. Thanks so much for joining me.

David Rader: Hey, thanks for having me. Great to see you, Tom.

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