US DOJ formally ends the China Initiative, but leaves the underlying prosecution priorities intact

On February 23, 2022, Assistant Attorney General Matthew Olsen formally announced the end of the China Initiative, a policy initiative that the US Department of Justice created in 2018 in order to investigate and prosecute allegations of espionage, trade secret theft and other conduct committed by the Chinese government and those acting on its behalf.  AAG Olsen further announced that, in place of the China Initiative, the DOJ National Security Division (NSD) would launch a Strategy for Countering Nation-State Threats, which will focus on countering threats to US national security and economic interests on the part of not only China, but “a range of hostile nation-states.” 

While the end of the China Initiative appears to mark a turning point in how DOJ handles China-related cases, it is also clear that DOJ will continue to focus on the same policy priorities under a different name – while broadening the approach to also include other countries such as Russia and Iran (Relevant Countries). Individuals, companies and groups who maintain close connections to the Relevant Countries (particularly in the areas of academic and research collaboration, technology and information sharing and supply chain sourcing) should continue to expect potential investigative attention from DOJ. 

History of the China Initiative

In the approximately three years of its operation, the China Initiative was the basis of dozens of prosecutions of individuals and entities who were alleged to have unlawfully formed or concealed ties to Chinese institutions and state organs. DOJ announced at the beginning of the China Initiative that the program was intended to “reflect[] the Department’s strategic priority of countering Chinese national security threats.”  The China Initiative placed special emphasis and resources on “identifying and prosecuting those engaged in trade secret theft, hacking and economic espionage, [and the protection of] our critical infrastructure against external threats including foreign direct investment, supply chain threats and the foreign agents seeking to influence the American public and policymakers without proper registration.”

In fact, and while underscoring the goals of the China Initiative, US prosecutors successfully convicted a number of individuals of unlawfully maintaining, or failing to disclose, allegedly illegitimate relationships with Chinese entities and state organs. Defendants were convicted of exporting sensitive technology to China-based recipients, stealing and selling commercial trade secrets on behalf of China-based competitors of US companies, acting as agents of the Chinese government and making false statements about their ties to China in federal research grant applications. According to the MIT Technology Review, federal prosecutors in China Initiative-linked cases have indicted over 162 individuals and entities, with 45 of those defendants being convicted at trial or in a guilty plea.

From the very beginning of the program, however, a number of critics both inside and outside of the US government expressed concern that the China Initiative stigmatized academics and researchers of Chinese descent, made legitimate collaboration with Chinese institutions unduly suspect and criminalized “technical” violations such as the failure to disclose employment, funding streams, or income from China-based sources (which violations do not in themselves, the critics assert, evidence nefarious relationships with the Chinese government). As the Committee of 100, a non-partisan Chinese-American civil rights organization, indicated after AAG Olsen’s speech, “[t]he China Initiative is a failed program that has fueled racial animosity, xenophobia and suspicion towards the AAPI community and Chinese Americans in particular.” Committee of 100 Comments on the Department of Justice's Changes to the China Initiative, February 23, 2021.    

DOJ’s recent dismissal of charges against MIT professor Gang Chen seemed to underscore many of those concerns. Professor Chen was arrested and charged in January 2021 with failing to disclose his work with various Chinese institutions in Department of Energy grant applications. A year later, however, prosecutors dismissed those charges after DOE officials confirmed that their disclosure forms did not require Professor Chen to actually identify the affiliations that he was charged with concealing. Notably, Professor Chen is not the only person whose charges had been dropped by DOJ or been acquitted in a case under the China Initiative; ten other individuals also achieved this outcome.

Continued and broadened policy priorities after the China Initiative

Given the policy priorities that the China Initiative was meant to advance (namely, protection of US research and commercial interests from unfair competition and trade secret theft by foreign companies and government organs), it is unlikely that DOJ will discontinue that focus altogether.  

It is perceived by the market that going forward, DOJ will continue to be focused on the perceived national security risk of cross-border investment, research and commercial activity between the US and the Relevant Countries.

DOJ is likely to include the following changes:

• Increase attention on institutional targets rather than just individuals. According to the MIT Technology Review, about 14 of DOJ’s China Initiative prosecutions (about 9%) involved entities rather than individuals. In order to broaden the impact of their cases and reduce the stigma that arose from individually-focused prosecutions, DOJ may increase its scrutiny of US and non-US institutions and companies that it believes are engaged in trade secret theft and other violations. DOJ may also seek to increase the risks and attention for companies and groups that it believes are carrying out unlawful work outside of the US.
• Increase scrutiny on US companies’ and individuals’ public statements about their relationships with and operations in the Relevant Countries. DOJ may continue to investigate alleged false statements by individuals and companies about their relationships with the Relevant Countries, such as public companies’ declarations about the state of their Environmental, Social and Governance (ESG) compliance, or companies’ representations to the Committee on Foreign Investment in the United States (CFIUS) about the nature of inbound investment.
• Increase prosecutions under the Foreign Agent Registration Act (FARA) and the Foreign Corrupt Practices Act. DOJ is likely to turn to less-emphasized criminal violations in prosecuting cross-border activity. According to the MIT Technology Review, only about 18 prosecutions of the Foreign Agent Registration Act (FARA) were charged under the China Initiative. AAG Olsen’s February 23 announcement, however, emphasized DOJ’s priority “preventing malign influence inside our borders and to promoting freedom of expression and democracy against corrupt and repressive forces.” Similarly, the US government has identified “strategic corruption,” where a foreign government weaponizes corrupt practices as a form of foreign and industrial policy as a threat to US commercial and policy interests. DOJ is likely to increase its use of the FCPA to investigate and prosecute such alleged practices.
• Increase collaboration with other federal regulatory agencies. Finally, AAG Olsen announced that DOJ will use more “civil and administrative tools,” rather than purely criminal ones, to achieve its policy priorities. DOJ will likely work with other government agencies to bring a greater number of enforcement actions while reserving criminal sanctions for the most serious cases. DOJ, for example, will likely work more closely with federal agencies that fund academic research (such as NASA, the Department of Energy or the National Institute of Health) to impose stricter administrative requirements on recipients’ disclosures of outside funding sources and interests. Further, DOJ may work with the FBI and other law enforcement agencies to contact and advise US persons and institutions against working with certain suspect government organs and alleged hostile competitors.

Corporations and individuals who do cross-border business between the US and the Relevant Countries should remain vigilant given the broadening of these DOJ priorities, notwithstanding the formal ending of the China Initiative. Particularly, companies and individuals in sensitive cross-border activities, such as technology, research and data, should consider evaluating their compliance practices and readiness for regulatory and investigative attention.