The Defense Department stood up the Trusted Capital Marketplace in December, and already both capability and capital providers are signing up to participate, the undersecretary of defense for acquisition and sustainment said today.
In order to ensure adversary nations are not investing in U.S. defense and technology companies — and undermining national security in the process — the department created the Trusted Capital Marketplace.
"Trusted capital works by providing opportunities for trusted financial institutions and qualifying companies to explore mutually beneficial partnerships in support of national security goals," Ellen M. Lord said during a briefing at the Pentagon.
The marketplace is an online forum where technology and defense industry companies, both large and small, can be paired with investors who are interested in contributing to the national defense. Participation in the marketplace requires businesses within the defense and technology industry and capital providers to be vetted in advance.
"Each will undergo a rigorous due diligence process before they are accepted into the marketplace to ensure foreign ownership control and influence is nonexistent," Lord said. "Specifically, trusted finance partners will be able to apply via the trusted capital landing page and technology innovation providers will be required to receive a recommendation once going through our security screening processes."
Both small and mid sized companies in the defense industrial base are vulnerable to adversarial capital, Lord said. The Trusted Capital Marketplace is designed to fix that.
"We need to make sure companies can stay in business without losing their intellectual property — the foundation of so many critical technologies," she said. "Economic security can be undermined by acquisition of companies in the defense and dual-use sectors by entities that are U.S.-based, but are actually owned or controlled by adversarial foreign entities."
Citing an example of concern, Lord said that from January to April of 2020, China announced 57 outbound mergers and acquisitions worth $9.9 billion and an additional 45 outbound investments worth $4.5 billion in both the United States and other allied nations.
Lord said the Trusted Capital Marketplace, part of the department's Trusted Capital Program, is a way for businesses in the defense sector to ensure that when they accept investment, they will always know where that money is coming from.
"The defense industrial base ... really represents the nexus of economic and national security in the U.S. In addition to supporting and encouraging small businesses, our responsibilities in A&S include establishing policies to maximize United States competitive advantage, and ensuring robust, secure, and resilient national industrial base capabilities," Lord said. "The Trusted Capital Program provides a more lethal force by creating new partnerships in order to reform the way the government will provide opportunity for innovation."
Lord said the Trusted Capital Marketplace is just one tool the department uses to address economic and national security concerns related to adversary capital. The A&S mergers and acquisitions team and the Committee on Foreign Investment in the United States, or CFIUS, also play a role.