U.S. lawmakers from both parties have called for the federal government’s $720 billion flagship retirement plan to stop allowing members to invest in Chinese companies that have been sanctioned by the U.S. government after a Newsweek investigation revealed it was possible for them to do so.
A bipartisan group had long feared that the Thrift Savings Plan’s new Mutual Fund Window – a portal to roughly 5,000 mutual funds introduced in June 2022 – would open the way for its 6.8 million members to invest in companies sanctioned for supporting the Chinese Communist Party, for alleged human rights abuses, and as a security threat to the United States. Newsweek‘s investigation was the first independent confirmation that such companies were included in the funds being offered.
“Sadly, what I have warned against has now been confirmed,” said Sen. Joni Ernst, a Republican from Iowa who has cosponsored legislation that would prevent the investment of TSP assets in companies listed on the exchanges of China, Iran and Russia.
“The retirement funds of America’s public servants should not be used to bolster CCP-connected companies engaged in activities tainted by forced labor or that endanger our national security,” agreed Rep. Raja Krishnamoorthi, a Democrat from Illinois.
The Newsweek investigation showed that at least 115 of the mutual funds on offer contained one or more of 30 Chinese companies that appear on at least one of nine sanctions or watchlists governed by agencies ranging from the Department of Defense and Homeland Security to the U.S. Commerce and Treasury Departments. The analysis was carried out exclusively for Newsweek by Washington D.C.-based consulting firm Kilo Alpha Strategies, using data from the Coalition for a Prosperous America, a research and advocacy group.
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The opportunity to invest in the sanctioned companies via the mutual funds on offer is available to all plan participants, including 2.5 million members of the military, and members of Congress and the intelligence community.
The Mutual Fund Window (MFW) was established so participants could invest in the wider capital markets – just as any other American can. Members must have at least $40,000 in their account, make an initial investment of at least $10,000, and can invest no more than 25 percent of their fund holdings through the portal.
There is no legal bar to any Americans buying shares in the sanctioned companies or funds that hold them.
Ravindra Deo, the executive director of Federal Retirement Thrift Investment Board (FRTIB), which oversees the TSP, told Newsweek the agency has no authority to ask that any company be excluded from the mutual funds within the window – and to do so would require the agency to take on fiduciary liability for the entire platform. FRTIB’s website carries a disclaimer that says: “The use of the MFW is entirely voluntary.”
But critics say the investment option is unacceptable.
“Just tactically speaking, why in the world would we want to put any level of investment in any adversarial company?” asked Rep. Brian Mast, a Republican from Florida, who is chairman of the House Foreign Affairs Subcommittee on Oversight and Accountability and on the Congressional-Executive Commission on China.
“Even one (sanctioned company) is too much,” he told Newsweek.
Republicans have generally been more vocal in calls on the Biden administration to take action over the retirement plan.
Bolstering the Chinese Communist Party
Rep. Mike Gallagher, a Republican from Wisconsin and chairman of the Select Committee on the Chinese Communist Party, called FRTIB to “excise these mutual funds from the TSP immediately.”
“Under no circumstances should the retirement accounts of service members, federal employees, or state officials capitalize the Chinese Communist Party, fund forced labor, or build the weapons that could someday be used against us on a field of battle,” Gallagher said in a statement provided to Newsweek. “I urge every pension plan and fund manager to ask themselves: Do you want to be culpable for fueling the advance of the CCP’s economic, ideological, and military aggression?”
That sentiment was echoed by other lawmakers, including Rep. Rob Wittman, a Republican from Virginia, Rep. Jim Banks, a Republican from Indiana, and Sen. Jeanne Shaheen, a Democrat from New Hampshire.
“It’s dangerous to prop up companies that threaten the interests of the U.S. and our allies, and it would be particularly egregious to do so with the hard-earned savings of federal workers, including our military and civilian workforce,” Shaheen said after the TSP legislation was reintroduced last week.
Each said it was wrong for the TSP to allow public servants to bolster companies linked to the Chinese Communist Party.
“It is absolutely ridiculous that this has still not been resolved,” Rep. Michael McCaul, a Republican from Texas and chairman of the Committee on Foreign Affairs, said in a statement.
Among the sanctioned Chinese companies are Aero Engine Corporation of China (AECC), China’s leading developer of fighter engines, and the Aviation Industry Corporation of China (AVIC), a defense and aerospace conglomerate. AVIC, a major shareholder of AECC, belongs to the Chinese government’s central state-owned Assets Supervision and Administration Commission, making it a jewel of the state-owned economy.
Other companies make solar energy panels, and are sanctioned for using forced labor in China’s western region of Xinjiang, where millions of ethnic Uyghurs and other minorities have been subjected to severe human rights abuses, according to the U.S. government, the United Nations, Uyghur rights groups, and other NGOs. The Chinese government denies the accusations.
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“It’s long been expected that (TSP) mutual funds, pension funds, were able to skirt sanctions and invest in both sanctioned and often quite unsavory Chinese entities – it’s both depressing but also heartening to see these expectations proven and reported out,” said Isaac Stone Fish, founder and CEO of Strategy Risks, a data company that focuses on exposure to China and the associated risks.
He called for greater transparency for individual investors in the plan so that they could opt out of any investments in sanctioned Chinese companies if they want to.
Muddy Sanctions System
Americans can legally invest in many sanctioned companies because only one U.S. sanctions list – the Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Person List – explicitly bars investment in listed companies by any American. The other lists don’t specifically have a ban on economic activity. The president has the authority to issue an executive order instructing the Treasury Department to add these companies to the OFAC SDN list, but that hasn’t happened.
The inconsistency in the complex sanctions system also drew the ire of some lawmakers.
“The federal government’s approach to blacklisting malign agents of the CCP (Chinese Communist Party) is more of a cacophony than a symphony,” said Congressman Ritchie Torres, a Democrat from New York. “There are multiple departments with multiple blacklists, but there’s an alarming lack of coordination between and among them. When it comes to holding the CCP accountable, the left hand of the federal government doesn’t know what the right hand is doing.”
Officials with the White House and National Security Council did not respond to multiple requests for comment.
Looking to Lawmakers
The whole thing “is sort of mind boggling,” said Matt Turpin, a fellow at the Hoover Institution specializing in U.S. policy towards China.
Turpin noted divisions within the executive branch over China policy – with “a difference of mindset” between agencies that have economic goals, and those focused on national security in what he sees as a new Cold War.
“We have a whole set of folks that have not been able to understand those dynamics yet, despite now three administrations making it clear that the world has changed,” he said.
“This is going to actually require legislation – it would appear that it’s just too difficult for the administration to make it happen,” added Turpin, who served under Trump as the U.S. National Security Council’s Director for China and the Senior Advisor on China to the Secretary of Commerce. He also served under Obama, and later Trump, as an advisor on China to the Chairman and Vice Chairman of the Joint Chiefs of Staff in the Pentagon.
Mast, the Florida Congressman, said there are other benefits to looking at the issue in Congress.
“Legislative action is better than executive action,” he told Newsweek. “Let your 435 representatives and 100 senators go out there and be on record … Don’t give the executive branch that authority. That also makes it permanent. It doesn’t change from administration to administration, which is important.”
Other efforts have been made in the past. For example, Sen. Tommy Tuberville, a Republican from Alabama, previously introduced legislation to prohibit any TSP funds from being invested in any entity based in the People’s Republic of China – regardless of sanctions.
Sen. Marco Rubio, a Republican from Florida, along with Ernst and other lawmakers, reintroduced on May 18 the Taxpayers and Savers Protection Act of 2023 (TSP ACT), which would prohibit investment of TSP assets into companies listed on the exchanges of the “countries of concern.”
“Right now, the retirement savings of American service members and federal workers are flowing to Chinese companies that undermine our national security,” Rubio said in a statement to Newsweek. “This is a threat to our country, and it must stop.”
The proposal has bipartisan support, including from Shaheen, the Democrat from New Hampshire. A different version of the bill was introduced in May 2021 and failed to get traction during the last congressional session.
Valerie Bauman can be reached at [email protected]. Find her on Twitter @valeriereports