Arms Control and International Security Papers 

Volume 11 Number 23 

December 7, 2020 

Technology-Transfer 

De-risking: A New and 

Growing Need 

by Christopher A. Ford 

The Arms Control and International Security Papers are produced by the Office of the Under Secretary of State for Arms 

Control and International Security in order to make U.S. State Department policy analysis available in an electronicallyaccessible format compatible with "social distancing" during the COVID-19 crisis. 
Arms Control and International Security Papers Volume I, Number 23 I December 7, 2020 

Technology-Transfer De-risking: A New and Growing Need 

Technology-Transfer De-risking: A New and 

Growing Need 

by Christopher A. Ford1 

In this ACIS Paper, Assistant Secretary Ford explores the emerging issue of "de

risking" as applied to engagements with the technology sector of the People's 

Republic of China (PRC), stressing the need for commercial actors to ensure 

that technology-related engagements with China are not abused, and 

describing the emerging arena of "technology transfer de-risking" (T2D), which

is of increasing importance for commercial entities and financial institutions 

that wish to avoid reputational risk, to prevent potential future U.S. sanctions 

or penalties, and to keep their involvement with the PRC from inadvertently 

supporting human rights abuses and fueling destabilizing military 

developments. 

­

This paper looks at the phenomenon of "technology 

transfer de-risking" (T2D) in the context of longstanding 

and ongoing efforts by the People's Republic of China 

(PRC) to blur - and ultimately, Chinese Communist Party 

(CCP) leaders hope, entirely to erase - any distinction 

between the country's "civilian" and "military" industrial 

bases and technology sectors. It argues that both 

government and civilian entities in the democratic world, 

and particularly commercial and financial institutions of 

the private sector, should pay more systematic and 

prudential attention to elements of risk associated with 

economic and especially high-technology entanglement 

with the PRC, making T2D increasingly into a routine 

element of business practice. 

I. What is De-Risking? 

Before addressing these questions, however, it is 

useful to recount what we mean by "de-risking," a term 

used in various contexts, with different degrees of clarity, 

and belonging to a spectrum of responses that 

commercial and financial actors employ when faced with 

risks. Accordingly, we should be careful to be clear here. 

"De-risking" is arguably best known in the context of 

anti-money-laundering (AML) compliance, but the concept

is a significantly broader one. Across the different fields in 

which the term is used, it denotes the avoidance of a risk 

through avoidance of the activity that entails the risk. In 

one of the main fields where the term is used, financial 

1 Dr. Ford serves as U.S. Assistant Secretary of State for International Security and Nonproliferation, and is additionally performing the Duties of 

the Under Secretary for Arms Control and International Security. He previously served as Special Assistant to the President and Senior 

Director for Weapons of Mass Destruction and Counterproliferation on the U.S. National Security Council staff. 
Arms Control and International Security Papers Volume I, Number 23 I December 7, 2020 

Technology-Transfer De-risking: A New and Growing Need 

services, as ______________ explained by the Financial Action Task Fo_ rce 

"de-risking" 

"refers to the phenomenon of financial 

institutions terminating or restricting business 

relationships with clients or categories of clients 

to avoid, rather than manage, risk .... De-risking 

can be the result of various drivers, such as 

concerns about profitability, prudential 

requirements, anxiety after the global financial 

crisis, and reputational risk. It is a misconception 

to characterise de-risking exclusively as an antimoney laundering issue." 

Of course, it does not make sense to obligate 

terminating, or even restricting, every activity that carries 

a risk. For that matter, it does not make sense for 

policymakers even to nudge financial and commercial 

actors toward a de-risking approach where no vital policy 

goal is involved or where de-risking is not the best way to 

pursue such a goal. Careful assessment of benefits and 

risks are necessary here. Some activities, though carrying 

risk, are best continued with risk mitigation measures in 

place as safeguards, rather than being curtailed 

altogether. 

But with respect to certain activities in certain areas 

where certain actors are involved, the risks weigh more 

heavily toward restriction and even avoidance. Thus, 

though we do not wish to see important goods and 

services withheld from whole countries or communities 

under an indiscriminate de-risking approach, de-risking 

shou Id never be off the table altogether. With the 

increased emphasis the international community has 

placed upon nonproliferation in the last two decades, 

nonproliferation de-risking has emerged as a growing area. 

Numerous U.N. Security Council resolutions (UNSCRs) 

adopted pursuant to Chapter VII of the United Nations 

Charter, for instance, now require all UN Member States to 

impose sweeping sanctions against North Korea on 

account of its weapons of mass destruction (WMD) 

programs, and broad nuclear-related sanctions against 

Iran have also now come back into force pursuant to the 

terms of ____ UNSCR 2231 (2015). Additionally, ___ UNSCR 15_ 40

has since 2004 required all UN Member States to refrain 

from providing any form of support to non-State actors 

that attempt to develop, acquire, manufacture, possess, 

transport, transfer, or use nuclear, chemical or biological 

weapons, or their means of delivery. In short, de-risking 

over the past two decades has joined the nonproliferation 

toolkit. 

As both international rules and an expanding corpus 

of domestic law have grown up in this area - augmented 

by robust efforts by U.S. authorities to respond to 

sanctions evasion - it is increasingly common for financial 

and commercial due diligence to include attention to 

nonproliferation equities, for reasons not merely of legal 

risk but also of reputational harm. 

But "de-risking" policies and practices are not limited 

solely to violations of U.S. nonproliferation sanctions, 

where heavy penalties lie in wait for those who do not do 

enough to avoid facilitating abuses by their clients and 

customers. Attention is also increasingly being paid to derisking where the potential for direct harm to private 

sector actors is largely reputational, such as where specific 

activities or commodities are likely to implicate them in 

unsavory things such as labor abuses and human rights 

abuses committed by their commercial counterparties 

overseas. 

"De-risking," then can be seen as part of a spectrum of 

available responses through which commercial and 

financial actors take prudential steps to partially or wholly 

protect themselves and their investors against various 

types of harm that can inadvertently result from the policy 

externalities - e.g., facilitating international drug 

trafficking, WMD proliferation, or human rights abusescreated by incautious business decisions. It is the thesis of 

this paper that such due diligence thinking should also be 

extended to involvement with PRC counterparties 

involved in problematic activity, with particular attention 

to the risks of technology diversion to military 

applications. 

II. Risks and Challenges of Sensitive 

Transactions with the PRC 

A. General Problems 

It is no secret, of course, that commercial dealings 

with and investments in the PRC entail special challenges 

and risks. ______________ U.S. financial regulators, for instance, ha_ ve 

___ warned that corporate stock offerings, financial 

prospectuses, and other instruments coming out of China 

involve "substantially greater risk that disclosures will be 

incomplete or misleading and, in the event of investor 

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Arms Control and International Security Papers Volume I, Number 23 I December 7, 2020 

Technology-Transfer De-risking: A New and Growing Need 

harm, [there will be] substantially less access to recourse.

PRC environmental and labor standards are notoriously 

poor, even high-profile sectors such as ____ nuclear reac_ tor 

safety regulation take shortcuts in the name of sectoral 

expansion in order to meet government expansion target

and intellectual property theft from foreign commercial 

counterparties has been routinized - even where 

sweeping technology transfers were already required 

under PRC law - pursuant to government policies 

explicitly devoted to helping PRC "national champion" 

firms take over every significant economic and 

technological sector from their Western competition. 

" 

Such institutionalized untrustworthiness is, in fact, an 

inescapable, structural part of the PRC's system of 

governance. The totalizing nature of CCP authority all but 

preordains this, for the PRC is a system that precludes true 

fidelity to the rule of law almost by definition, since 

national law is merely a creation and instrument of the 

state, whereas the state itself belongs to and works for the 

Communist Party, which is itself subject to literally no 

legal check unless (and only for so long as) it chooses to 

be. With the CCP's political legitimacy narrative partly 

rooted in quasi-Confucian conceits of benevolent 

omnicompetence but even more strongly rooted in 

ancient Legalist (and modern Leninist) concepts of 

brutally unanswerable authority, it rejects democratic 

accountability to the Chinese people in large part upon 

the assertion that in return for the Party's absolute power, 

the CCP's rights-deprived subjects at least live under a 

collective leadership that is supposedly always correct and 

always looking out for the best interests of the country. In 

this context - and for a ruling Party that cannot really 

evade responsibility for anything in China because its 

absolutism gives it power to do just about anything if it 

wants to - it is hardly surprising the CCP is extraordinarily 

sensitive about its reputation, and has become notorious 

not merely for falsifying its own bloody history and record 

in power, but also for routinely covering up abuses, 

corruption, and ineptitude on an industrial scale. 

But these problems are not new, and Western 

financial and corporate interests - for years actually 

e

___________ ncouraged by their governmen_, ts sometimes under 

hubristic delusions about China's neoliberal destiny of 

peaceable democratic governance that would seem 

quaint if their modern-day results were not so grim - were 

long willing to suffer under these conditions in return for 

the short-term profits offered during the PRC's last 

generation of export-led growth. As Western governments 

have begun to wake up to the problems created by such 

facilitation of the "rise" of an increasingly militarized and 

brutally authoritarian state that sees its own destiny as 

that of reorganizing the global system around itself, 

however, the full implications of incautious involvement 

with the PRC are becoming much more clear. 

The United States has increasingly been willing to 

move against Chinese entities that are engaged in or 

support some of the more horrific aspects of CCP policy. 

In the last few months alone, for instance, the U.S. 

Commerce Department has tightened ____ export cont_ rol 

restrictions against Chinese entities implicated in human 

_____ rights abuses in the implementation 

of the PRC's campaign of repression, mass arbitrary 

detention, and high-technology surveillance against 

members of Muslim minority groups in Xinjiang. The 

Commerce Department has also tightened export control 

restrictions against entities involved in helping the 

People's Liberation Army (PLA) claim and militarize 

disputed outposts _______ in the South China S~ ea which furthered 

the PRC's __ illegal claims over that area, while the State 

Department has _____________ imposed visa restrictions on individua_ ls 

involved in the large-scale reclamation, construction, or 

____________ militarization of disputed outposts there. The Treasury 

Department has imposed _________ sanctions against individu_ als 

who have been involved in undermining Hong Kong’s 

autonomy and in the CCP’s anti-democracy crackdown 

Nor is the question limited simply to dealings with 

PRC firms in China itself, for the _______ myriad security risks_ of 

__________________ any entanglement with the PRC’s technology giants - risks 

such as user data theft, espionage, vulnerability to cyber 

criminals, complicity in the human rights abuses of the 

CCP surveillance state, and risk of strategic and political 

manipulation from Beijing - are also becoming 

increasingly clear. This growing understanding of the risks 

of involvement with PRC firms such as Huawei has 

prompted leading Western governments such as Germany, 

France, Japan, Sweden, the United States, and the United 

Kingdom to impose ever more effective restrictions upon 

efforts by such firms to take over SG telecommunications 

infrastructures around the globe, in some cases simply 

leading to outright bans on Huawei. 

With each step drawing attention to such dangers and 

increasing the consequences associated with companies' 

support for or facilitation of provocative PRC policies and 

activities, Western firms need ever more carefully to 

consider the dangers inherent in doing business with such 

3 

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Arms Control and International Security Papers Volume I, Number 23 I December 7, 2020 

Technology-Transfer De-risking: A New and Growing Need 

PRC entities. Thus are the de-risking challenges 

associated with the CCP's domestic totalitarianism and 

the PRC's destabilizing geopolitical revisionism steadily 

growing. As awareness grows of these problems, so too do 

the potential legal, market, and reputational harms that 

can arise for Western private sector actors from their 

imprudent entanglement with the CCP Party-State. 

And indeed, much of this seems to be underway. In 

one example - prompted by growing attention being given

to the CCP's ongoing campaign of repression against 

Uyghurs, ethnic Kazakhs, ethnic Kyrgyz, and other ethnic 

and religious minorities in Xinjiang, including mass 

detention of more than one million persons, torture, 

forced labor, coercive family planning (including forced 

abortion and forced sterilization), sexual assault, and 

attempts to "Sinicize" exercise of the Islamic faith -

Western companies have quite properly begun trying to 

dissociate themselves from PRC supply chains in the 

textile sector that might be tainted by forced labor in 

Xinjiang. Such dis-entanglement seems likely to occur 

across an ever-broader range of issue areas. 

B. Technology-Transfer Risks 

Hence, I suggest, the importance of "technology 

transfer de-risking," or T2D, for in the technology arena 

there are additional risks that deserve attention from 

private commercial and financial actors: the __ PRC’s 

ongoing and systematic effort to acquire cutting-edge 

W_______ estern technology and to _______ divert it to the Peopl_ e’s 

L

______ iberation Army (PLA) and the Chinese security services _ in 

support of the CCP’s destabilizing geopolitical revisionism

and h_______ egemonic ambition . Both in this paper series - e.g., 

ACIS Papers _8, 9_, _16 , and _ 17 - and in multiple speeches on 

issues ranging from e

________ xport control reform to ___ civil-nucle_ ar 

c

____ ooperation and the need to _______ protect U.S. industry against 

the ________________ dangers of entanglement with the PRC’s “national _ 

---------~ champion” technology firms we have been warning of this 

threat ________ since at least July 2018 . Secretary Pompeo has also 

s

__________ poken forcefully on the topi_, c specifically addressing his 

concern to the leaders of the U.S. technology industry. 

Simply put, the PRC's strategy of" ___ Military-C_ ivil 

F__ usion " (MCF) presents a significant national security 

threat to the nations of the democratic world, and an 

ongoing challenge for any possessor of cutting-edge 

technology that engages with any person or entity subject 

to PRC jurisdiction. Irrespective of any end-use 

commitments or other promises that may have been 

given, under Chinese law no person or entity subject to 

PRC jurisdiction can refuse cooperation if the authorities 

request access to any technology to which that person or 

entity has access. Nor is there any legal recourse against 

such commands, for in the CCP's China, the law is itself 

merely a tool of the Party. As noted above, this is simply a 

fact of life in modern China under the extra-legal - or 

perhaps, more accurately, supra-legal - set of coercive 

tools available to the CCP: 

" Chinese companies or nationals clearly do not 

always, or necessarily even usually, act as de 

facto extensions of the CCP and do its bidding as 

functional appendages of the Chinese police 

state. Nevertheless, the CCP and the PRC 

government apparatus it controls – for, with 

apologies to Voltaire, who made a similar point 

about the relationship between 18th Century 

Prussia and its army, while most states have 

political parties, the Chinese Communist Party 

quite literally has its own state – enjoy 

extraordinary powers to coerce and to co-opt 

essentially anyone, if the Party chooses to exert 

itself in such a fashion " 

From the point of view of technology-possessors in 

the non-PRC world, therefore, there is literally no way to 

be entirely sure that a militarily useful technology, if 

transferred into PRC hands, will not be diverted to the PLA 

or the security services. Since the entire MCF bureaucracy 

exists precisely in order to carryout such transfers, 

moreover, one has to assume that such transfer probably 

will occur. As a result, any physical or informational 

transfer of militarily-useful technology, especially at or 

near the cutting edge of what is presently possible - not to 

mention transfers related to foundational and emerging 

technologies - must be presumed to be problematic. As 

the CCP regime's oppressive, technology-facilitated 

totalitarianism at home and destabilizing arrogance and 

aggressiveness abroad both grow, these facts must 

necessarily be taken into account in engagements with the 

PRC technology sector, lest "ordinary" commercial 

transfers and transactions contribute to extraordinary 

problems that have global implications. 

This does not mean, of course, that we should - or 

could - impose a full-scope blockade on absolutely 

anything that might conceivably have military utility. In a 

world as interconnected as is our own, we are necessarily 

primarily in the business of risk mitigation rather than 

4 
Arms Control and International Security Papers Volume I, Number 23 I December 7, 2020 

Technology-Transfer De-risking: A New and Growing Need 

complete risk avoidance. But it is also clearly the case that 

much more care and caution is needed in engagements 

with the PRC technology sector in order to avoid transfers 

of those technologies explicitly sought by the MCF system 

(e.g., artificial intelligence, quantum computing, "hot 

section" aviation engine technology, high-end 

semiconductor manufacturing technology, nuclear reactor 

technology, and Big Data analytics), and in order to avoid 

involvement with PRC entities that support this system. 

This makes T2D of growing importance. 

In the U.S. Government, we have been working to 

respond to these challenges, beginning with our __ revisio_ n 

of national security export control policy on civil-nuclear 

c

_________ ooperation in October 20_, 18 and more recently with 

changes in ____________ semiconductor design tool licensin~ g visa 

--- screening ~ and ---------- Hong Kong-related export ru~ les as well as 

the addition of key PRC technology companies to the 

Commerce Department's" ____ Entity List ." Additionally, we 

are now revising our rules for _____ screening forei_ gn 

investments in the United States, and how we handle 

export control rules vis-à-vis foundational and emerging 

technologies

Because technology engagements with the PRC can 

clearly entail significant reputational, policy, and 

potentially legal risks, however, it is also now necessary 

for the private sector to pay more attention to technologytransfer de-risking, particularly (though not exclusively) 

with regard to engagements with the PRC and its MCF 

apparatus. We are still in the early days of the 

development of T2D as an area of specialized expertise, 

but already it is becoming increasingly possible to conduct 

"know your customer" (KYC) due diligence that can reduce 

the risk of inadvertent support for or subsidization of the 

PLA or the Chinese security services. Open-source 

information, including some very comprehensive analyses 

by scholars and think tanks, is today making it more and 

Arms Control and International Security Papers 

The Arms Control and International Security Papers are produced by the Office of the Under Secretary of State for Arms 

Control and International Security in order to make U.S. State Department policy analysis available in an electronicallyaccessible format compatible with "social distancing" during the COVID-19 crisis. 

more practical to identify PRC entities that have at least an 

overt affiliation with the MCF system. Since this is a 

cooperative challenge, moreover, we in government are 

working to make more T2D-relevant information available 

as well. 

Private technology-holders necessarily have a good 

feel for the nature of their own technologies, and therefore 

also for these technologies' potential implications in 

malevolent hands. Now that the threat of dangerous 

technology diversion is so widely known - and is indeed 

now being comprehensively publicized through various 

organs of the U.S. Government, even as it steps up 

measures designed to prevent and to address such activity 

- private companies have both the opportunity and a clear 

need to think through de-risking in a new way, to help 

protect themselves from the multiple risks involved. This 

is a new area, and despite its importance is still only an 

emerging sub-specialization within the well-established 

arena of corporate due diligence. Nevertheless, T2D is a 

topic of increasing salience, and one should expect to see 

more work being done in this field. 

Ill. Conclusion 

This paper cannot claim to offer comprehensive 

answers to the challenges of technology transfer "derisking," but we hope it has at least highlighted the 

importance, to private sector actors and the government 

alike, of addressing this need in thoughtful ways. The 

threats that MCF and the PRC's global ambitions present 

to the non-PRC world are considerable, and require an 

effective response. T2D can be an important part of this 

response, and we look forward to working with our private 

sector counterparts on this in the months and years 

ahead.