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Washington, D.C. – Today, House Foreign Affairs Committee Chairman Michael McCaul questioned witnesses at a full committee hearing to address the flow of U.S. dollars to the Chinese Communist Party (CCP). 


WATCH his questioning here.


– As Delivered –

Chairman McCaul: “I just want to say first that the witnesses filled out a truth and testimony form, regarding any motivation to impugn your character before this committee is not well served in my judgement. And perhaps for Mr. Davidson, since he missed your testimony, Mr. Pottinger, why don’t you describe the difference between a sector-based approach and an entity-based approach.”

The Honorable Matthew Pottinger: “Congressman, if you’re looking at an entity-based approach, that requires the U.S. Government, probably the Department of Treasury, to look at each specific company that it wants to prohibit Americans from investing in. So, they actually have that authority from the executive orders that emerged from the late Trump administration and the early Biden administration, but only 68 companies, to my knowledge, were only ever designated for prohibition from U.S. investment in the Chinese military affiliated companies. So, a sector approach, the idea is that you don’t have a barn full of analysts, God bless them, over at Treasury, they’re all having to divide different problem sets as well. I mean, I’ve been over there when I was in office. If North Korea is testing a nuke or a missile, that team has to really shift to start targeting North Korean entities. And by the way, Iran’s creating problems. Russia is now launched the biggest war in Europe since World War II. That Treasury team is getting spread very very thin. I know how hard they work. If you have a sectoral approach, that just says, ‘Look Americans, U.S. persons, are not allowed to invest in these particular sectors that are relevant to China’s military and surveillance state, as well as Russia’s, North Korea’s, and Iran’s,’ it makes it simpler and less resource intensive for the U.S. government.”

McCaul: “So, it in fact provides more clarity to the private sector and businesses, correct?”

Pottinger: “I would argue that it provides more clarity, yes.”

McCaul: “And an entity can be changed overnight in China, correct?”

Pottinger: “Sure.”

McCaul: “And so, a sector-based approach would get around that –”

Pottinger: “One of the things I mentioned earlier was that China has systematically shut down the research enterprise in China so that it is harder for foreign companies to acquire real-time information about ownership structures, supply-chain flows, and the like. Those companies are being rolled-up and dismantled or co-opted to serve and align themselves with the Chinese Communist Party.”

Rep, Warren Davidson (R-OH): “Would the Gentleman yield for a question?”

McCaul: “I’m not finished yet. We attempted to sanction under Treasury, Hikvision, which is a state surveillance company on the Uyghur Muslims, and guess what the Treasury Department said in a letter to me and the Ranking Member? ‘Can’t be done.’ So, I guess it depends on who is at the Treasury Department. But yes, so I will yield.”

Davidson: “So, is the Gentleman’s contention then that OFAC and the current sanctions regime is inadequate to the task of sanctions evasion?”

McCaul: “I think the question is what’s most effective. And I think the sector-based approach is going to be a more effective way to capture capital flow investment into these five sectors that we know are responsible for the build-up of the [People’s Liberation Army] and their war machine. An entity-based approach can be manipulated by the CCP, as the former Deputy National Security Advisor to President Trump has just told this committee and testified to. I’m not saying that sanctions aren’t and effective tool. And in fact, Mr. Barr and I have had many discussions trying to have some sort of rational conclusion to this, but it has to be in good faith. And I think that you can take the best of both, perhaps, and that’s precisely what we’re working on.”

Davidson: “Well hopefully we will wind up with good amendments, I yield back.”

McCaul: “All I really care about, Sir, is we got to stop selling China the technology. We got to stop investing in their war machine, particularly at this dangerous time that we find ourselves in. You look at Taiwan and the Taiwan Strait, you look at the TSMC and the semiconductors and the whole thing. I appreciate your spirited debate.”