Sensitive Technology Transfer & China - HIK Group Analysis

U.S. officials have estimated that China steals up to $600 billion of American intellectual property annually. This theft endangers the jobs of more than 45 million Americans who work in IP-intensive industries, which account for more than $6.5 trillion in economic output.?

Our analysis shows that HIK Technology Group (China) are currently active in the sensitive technology space - we also identified them as submitting a patent to the US Patent Office (USPTO) and have identified shipments of their products to multiple destinations around the world. Companies should be wary of these transhipment points, and violations / penalties that could ensue from US enforcement agencies, should US companies be found to be transacting/purchasing goods from watchlisted companies.?

Introduction

For the last several years, the U.S. government has been developing policies and regulatory controls for military, dual use and emerging technologies critical to its national and economic security. This process has been challenging from a policy perspective due to the intangible nature of technology which does not easily align with traditional regulatory approaches and established control systems. The requirement for effective technology controls while simultaneously supporting U.S. IT innovation and competitive commercial environment has become increasingly urgent in the context of the U.S.-China power competition and China’s aggressive theft of technology in support of its national security objectives.

This month, the BITE team reports on some of our work done to identify high-risk entities we have uncovered in our data, the commodities they manufacture, and their direct customers around the world. US companies should be wary of receiving goods from watchlisted companies, even if not received directly from the watchlisted entity but through a transhipment point/entity.?

?Analytical Background

Technology designs are fundamentally more difficult to control than physical military or dual use commodities as they are “intangible” and their cybertheft and transfers are inherently more difficult to define, license and track.

Developing effective technology controls poses a particularly complex challenge within the U.S. export control regime. There are several licensing and enforcement agencies with redundant responsibilities and overlapping licensing jurisdictions; controlled technologies may fall under the? Department of State (military) or Commerce (dual-use and military) or fall under the review of the Committee on Foreign Investment in the United States (CFIUS) or Commerce’s Certain Emerging Technologies list which should not be confused with the White House’s National Science and Technology Council’s Critical and Emerging Technologies (CET) list. An anticipated Executive Order for Outbound Investments (reverse CFIUS) is expected to also cover technology transfers.

While the U.S. has controlled military and dual use technologies under existing export control regulations, it is now expanding its control regime to regulate critical and emerging technologies while at the same time not adversely impacting its IT R&D competitive environment.

U.S. technology control policy challenges are compounded by the People’s Republic of China’s (PRC) aggressive, ongoing state-directed technology theft programs such as “Made in China 2025” and “Military-Civil Fusion.” These efforts clearly show China’s commitment to IP acquisition by any means necessary and their threat to U.S. national and economic security.

PRC technology thefts endanger the U.S. job security of more than 45 million Americans who work in IP-intensive industries and account for more than $6.5 trillion in economic output. The technologies sought by China are often used for malign purposes, posing serious national security risks to the U.S. and its allies.

Analytical Approach:

Given the multi-agency requirements of technology control policies and the diversity of stakeholders – academia, IT sector, commercial sector, government – a whole of government or whole of nation approach is necessary to avoid implementation failure.

In this regard, NU Borders design hypothesis for this use case was to query large-scale, diverse data sets - patent information, trade data and denied parties lists – to identify the intersection of the three domains of IP, supply chains and malign actor actors.?

Border Intelligence for Trade Enforcement (BITE) analytic platform contains over 700 million international manifest records, over 40 thousand patents associated with critical and emerging technologies (CET) identified through web scraping and 75 thousand denied parties involved in illicit trade behavior.

The BITE team modeled the data across the platform to identify Chinese entities on the U.S. Watch Lists, who hold CET patents and are involved in the international supply chain.

?Use Case: Hikvision

Our analysis shows that Hangzhou Hikvision Digital Technology Co., Ltd., (Hangzhou, China) is on the Department of Commerce's entity list and Treasury's OFAC NON-SDN list, holds U.S. patents for facial recognition (a biometric technology) and has significant trade transactions globally for camera shipments and related equipment. Hikvision has been accused of enabling human rights abuses by supplying the Chinese government with cameras used in the repression of the Uyghurs, and are currently watchlisted by the Department of Commerce and Department of Treasury.

Additionally, our analysis shows multiple shipments around the world for HIK Technology. A summary of the data found in BITE? includes the following:

Patent Data: US Patent Office (USPTO) data. Hangzhou Hikvision Digital Technology Co., Ltd., a part of the HIK Technology Group, are shown to have submitted for a patent on “FACE LIVENESS DETECTION BASED ON NEURAL NETWORK MODEL”, Patent No. 0200334450, on Oct 21, 2020.?

Watchlists: HIK Technology Group are on the following watchlists:

?Entity List (EL) - Bureau of Industry and Security

Office of Foreign Assets Control (OFAC) - Non-SDN CMIC List

Trade Data: The NU Borders identified thousands of transactions by HIK Technology to its overseas trade partners, including but not limited to the following representative sample:

?RECURSOS TECNOLOGICOS ABIERTOS TECHRESOURCES CIA LTDA, Ecuador

- ? Product Descriptions: Digital Cameras and Camcorders, Video Intercom Screen, CARRIER CURRENT TELECOMMUNICATION DEVICES OR DIGITAL TELECOMMUNICATION

MACROQUIL, Ecuador

- ? Product Descriptions: NVR 16 CH, Digital Cameras and Camcorders, DECODER 16 CH

JABIL CIRCUIT INDIA PRIVATE, India

- ? Product Descriptions: 497-0532015 3.7MM CAMERA MODULE (IGCRD SR NO.13),

PHUONG VIET DISTRIBUTION, Vietnam

- ? Product Description: Camera recorder image CCTV IDS 2CD7A46G0 IZHS 28 12MM C does not have MMDS in 2016 2016 ND CP 53 2018 ND CP Lens 28 12mm Brand Hikvision New100, IDS 7208HUHI M2 S recorder has 08 channels including sources and mice brands Hikvision new100

LINACO VIET NAM TECHNOLOGY DEVELOPMENT COMPANY, Vietnam

- ? Product Description: Webcam Hikvision DS UC8 no memory card slot 1080p HD resolution 3 6mm lens Manufacturer HikVision 100 new goods

?Conclusion:

U.S. technology policies and regulations such as CET are complex, cut across several agencies’ responsibilities and have a significant impact on a full spectrum of stakeholders within the government and private sector. As policies are developed to protect technology theft and forced transfers, decision-makers should consider leveraging data from multiple agencies and private-sector and applying advanced data analytic approaches to identify high-risk entities and their behavior as demonstrated by the Hikvision use case.

Given the intangible nature of technology transfers and inherent challenges in identifying violations, data analytics paired with large-scale open-source data sets such as patent and manifest records provide a pragmatic solution for 1) identifying critical and emerging technologies 2) identifying those at risk for cybertheft and illicit transfers 3) while supporting innovative and collaborative marketplace for IT advancements.

While our analysis in this article did not provide details on shipments from transhipment points like Vietnam and India to the US, companies should be wary of these transhipment points and ensure sensitive technology from China is not being imported into the US, thereby reducing demand for US-manufactured goods.?

Want a stronger compliance profile for your company? Set up a discussion and demo of BITE by emailing us at [email protected]?