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CIA secretly investigating SoftBank on semiconductor tech leak to China through subsidiary

  • December 1, 2018
  • , THEMIS , p. 16-17
  • JMH Translation

With the U.S. stepping up sanctions against China, the Central Intelligence Agency (CIA) launched a top secret investigation of the SoftBank Group (SBG) on suspicion that Arm Holdings, a semiconductor subsidiary of the Japanese telecommunication firm, may have provided cutting-edge semiconductor technology to a Chinese company affiliated with the Chinese People’s Liberation Army (PLA).


The PLA, which has been broadening its military presence, was in a bind sourcing semiconductor technology as a result of sanctions by the Trump administration. The Chinese government led by Xi Jinping tried to find a breakthrough in this “semiconductor blockage” with the help of the Abe government, which is working hard to improve the Japan-China relationship.


“Is Prime Minister Abe helping China with military expansion?” A Department of Defense official who was visiting Japan to participate in an international forum held in October asked this question of Japanese government officials present at the event.


According to sources close to Japan’s public safety authorities, the Trump administration is becoming leery of Abe, as he is getting closer to China of late. This prompted the CIA and other intelligence agencies to start a probe into Japanese firms suspected of providing technology to China.


The CIA was paying close attention to a channel for high-tech information routed to Chinese military firms via Japanese companies. Concern is increasing within the U.S., as the DOD official who participated in the symposium warned that “this channel is becoming the source of high-tech information that the Chinese military is snatching.”


SBG has been broadening its corporate wing across the world under Chairman and CEO Masayoshi Son, who promotes a “fleet strategy” [designed to acquire 20-30% ownership stakes in global  firms leading in various technology fields]. Based on this philosophy, the company is deepening ties with Alibaba, in which it holds a substantial stake, and Huawei Technologies, which the U.S. government and Congress have asked allies not to do business with. With regards to SBG’s business engagement with China, a senior official from the Japanese public safety authorities warns that “it is no longer a Japanese firm and it is acting as an agent of China’s communist-ruled government and helping it loot cutting-edge technology throughout the world.”


The CIA suspects “Arm Holdings, the British semiconductor firm which SBG acquired,” as being behind this technology transfer, according to a source close to the U.S. intelligence entity. SBG bought the world’s leading semiconductor firm for about 3.3 trillion yen. It later extended support to the firm’s Chinese operations and sold off its 51% ownership stake in Arm’s Chinese subsidiary to a Chinese investment group for about 775 million dollars. According to the CIA, this dramatically helped expand China’s accessibility to Arm’s semiconductor technology.


Arm has gained momentum ever since it became a part of SBG. A U.S. journalist who specializes in the semiconductor industry points out that SBG’s business tie-ups with Alibaba and Huawei as well as strong connections with China “gave a boost to Arm’s Chinese operations.


According to Taiwanese sources familiar with the semiconductor industry, investors in Arm’s Chinese joint venture include Tsinghua Unigroup, which supplies semiconductor parts to the Chinese military. Backed by the Xi government, Unigroup moved to acquire the U.S.-based Micron Technology (which bought Japan’s defunct Elpida) in 2015, but the plan fell through due to opposition from the U.S. government and Congress. It was rumored that the firm was desperately looking for access to Micron’s chip memory know-how to improve its ballistic missile technology. 


After its failed attempt to acquire the U.S. firm, Unigroup, which was rushing to improve the performance of ballistic missiles that the Chinese military possesses, zeroed in on Arm. But a buyout of Arm by a Chinese firm would definitely meet strong opposition from the U.S. and Europe. A senior official at the Ministry of Economy, Trade and Industry, who oversaw the Elpida sale to Micron, says: “Unigroup used the Japanese firm as a camouflage in the buyout of Arm as it anticipated objections from the U.S. and Europe.”


The significant element of this buyout is that Arm’s ownership of intellectual property rights in semiconductor and other fields was transferred to the Chinese joint venture this year. This allows Chinese chip makers to tap licensing technology for cutting-edge semiconductor development. “Chinese manufacturers of ballistic missiles danced for joy,” said a person with a Taiwanese chip maker.


The Prime Minister’s Office [Kantei] has been informed of the CIA’s top secret investigation into SBG. In addition to Arm, the Japanese government is carefully watching close ties between SBG and Huawei over 5G mobile network technology and growing concerns that their expanded relationship may result in the leakage of classified information.


METI warns against moves to eliminate Huawei in the U.S. and Europe. “There is no international accord on export restrictions like that imposed by the Coordinating Committee for Multilateral Export Controls (COCOM),” said a senior METI official. But an official at the Ministry of Foreign Affairs who oversees Japan’s foreign policy with the U.S. says: “The Committee on Foreign Investment in the United States (CFIUS) can issue an Executive Order that is applicable to companies of the U.S. allies.” Rumor has it that the CIA is investigating the SBG case to make recommendations to CFIUS, which is expanding its authority.


We asked SBG about the CIA’s top secret investigation, but the public affairs department at Arm K.K. (Japan) answered “there is no such investigation.”


Masayoshi Son, who has been broadening his footprint in international business, met with President Trump before his inauguration and pledged to invest in the U.S. He is also a business partner of Las Vegas Sands Corporation Chairman and CEO Sheldon G. Adelson, the biggest supporter of President Trump.


Nonetheless, he is suspected of acting to extend a helping hand to China, which is in a bind as a result of the U.S. sanctions, through the Chinese subsidiary and of leaking “semiconductor technology.” Why is that? The Japan-U.S. relationship may take a direct hit, depending on the results of investigations by the CIA and Trump administration. (Abridged)

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