Foreign Shell Companies Trying to Infiltrate US Defense Industry, Top Weapons Buyer Says

Without naming China, the Pentagon's acquisitions chief warned Thursday of foreign adversaries using shell companies to buy into struggling small defense firms during the coronavirus pandemic.

"We see a lot of shell companies coming in where the beneficial owner ends up being one of our adversaries," Ellen Lord, the undersecretary of Defense for Acquisition and Sustainment, said in a Pentagon teleconference. "I'm particularly concerned about that."

Some of the targeted firms manufacture critical components for the Air Force and Navy, but face financial stress during the COVID-19 crisis that makes them susceptible to unscrupulous foreign investors seeking access to company secrets, Lord said.

The major problems with so-called "adversary capital" are in "some of the smaller manufacturers who, maybe from a dollar volume don't do huge numbers, but they are providing critical components across aircraft and naval sort of applications," Lord said.

"That's where my biggest concern is: sort of the weakest link" in the defense industrial base, Lord said.

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She said she was working with Congress to strengthen the interagency Committee on Foreign Investment in the United States (CFIUS) to give the Defense Department additional tools to block questionable investors.

She said "we have to be very, very careful about the focused effort some of our adversaries [have made to wage] economic warfare with us, which has been going on for some time."

Lord did not name any of the adversaries Thursday. But she has long warned of China's attempts to gain U.S. intellectual property.

In a May 2019 news conference, Lord said that China was "increasingly attempting to erase research and developments gains by leveraging and manipulating economic tools, like investment in U.S. companies with technology critical to our national security."

At the teleconference Thursday, Lord said she was counting on major defense contractors to push money faster down the supply chain to aid smaller firms who might be susceptible to foreign capital.

"I encourage all of those companies to be as transparent and forthcoming as they can be, because we have a responsibility to the taxpayer, as well as the mid-tiers and the small companies, to make sure that actions we take at the prime level do go down all the way through the chain," Lord said.

-- Richard Sisk can be reached at Richard.Sisk@Military.com.

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