COLUMBUS, Ohio – The U.S. Federal Reserve’s security policies aren’t tough enough to counter Chinese intelligence operatives’ efforts to steal the American central bank’s non-public economic information, according to a new Senate report produced by Ohio Sen. Rob Portman.
The investigation, as summarized in a minority party report released Tuesday by Republican investigators on the Senate Committee on Homeland Security and Governmental Affairs, focused on 13 unnamed Federal Reserve employees whose conduct was concerning enough that a past Fed counterintelligence analysis flagged them as “persons of interest.”
Among other suggested changes, the Senate Republican report recommends that the Federal Reserve establish closer ties with federal law enforcement and counterintelligence agencies, and also impose tougher policies on its employees, who frequently collaborate with international colleagues, when it comes to dealing with people in China and other restricted countries.
“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, who is the ranking Republican on the Senate homeland security committee, said in a statement. “The risk is clear, I urge the FBI and the Fed to do more to counter this threat from one of our foremost foreign adversaries.”
In a letter to Portman on Monday, Federal Reserve Chairman Jerome Powell contested the report’s findings, saying Fed employees with access to sensitive information regularly undergo rigorous background checks. Powell also said the Fed regularly refers matters to law enforcement “when appropriate” and contested how the report characterized individual employees.
“Because we understand that some actors aim to exploit any vulnerabilities, our processes, controls and technology are robust and updated regularly. We respectfully reject any suggestions to the contrary,” Powell said.
The report did not identify the 13 employees or where they worked, including specifying whether they work at the Federal Reserve Bank of Cleveland. Committee aides said this was done in part to protect any ongoing investigations.
Portman helped oversee the Senate investigation as a continuation of work his office did in 2019, producing a bipartisan report summarizing what it said were China’s efforts to steal American companies’ and academic institutions’ research and technology. That investigation focused on China’s Thousand Talents program, which recruits foreign experts, and which the FBI has said China has used to either pressure or reward U.S.-based participants to steal American intellectual property. When the new investigation started, Portman was the chairman of the Homeland Security committee’s permanent investigations subcommittee. With Democrats taking control of the Senate following the November 2020 election, Portman now is the committee’s ranking Republican.
The new investigation goes beyond scientific espionage, detailing what it says are Chinese efforts to obtain the sensitive and nonpublic economic data used by the Fed, which performs economic research in support of its core mission of steering U.S. monetary policy by loosening or tightening money supply and interest rates.
Some of the steps the report describes are similar to the tradecraft that spies use.
One of the 13 Federal Reserve employees, the report says, was detained in their hotel room during a 2019 trip to Shanghai. There, Chinese government agents threatened him and his family if he did not provide them with sensitive information. The employee later reported what happened to his supervisors.
Another employee, after being confronted over what was deemed to be suspicious activity, took measures to cover their tracks, like changing email addresses, the report says. For another now ex-employee, a review of their computer browsing history showed they had looked for information on the Internet about what had happened to people who had been arrested for selling secret information to Chinese intelligence agents.
Some of the security risks described in the report were somewhat more benign, like a Federal Reserve employee who maintained close ties with colleagues at Chinese academic institutions with connections to the Thousand Talents program, and another who recommended a dean at a Chinese university for a “significant award.”
Since the Senate committee investigation was launched in 2020, the Federal Reserve has forbidden its employees, who frequently exchange information and perspectives with international colleagues, from accepting money from restricted countries, including China. But the report recommends that the Federal Reserve take further measures, like imposing tougher vetting policies on employees who want to collaborate with international partners.
It also recommends that Congress pass Portman-authored legislation that cleared the Senate last year.