The United States government, following a confidential process, has prevented a Chinese company from buying a fertility clinic in San Diego, CNBC has learned.
The move to protect a U.S. fertility clinic highlights previously unknown concerns about China’s access to American medical data stored in fertility clinics, including the most intimate biological and personal information of families.
It does so against a backdrop of mounting tensions between the two countries after a summer in which each country closed each other’s consulates and accused each other of negligence in allowing the deadly coronavirus to spread.
Current and former officials told CNBC that the measures were taken by the secret foreign investment committee in the United States, which typically oversees transactions involving the buying and selling of businesses that affect national security. Officials would not say exactly when CFIUS took this action, but said it happened during the Trump administration.
CFIUS is an interagency committee that reviews foreign investment transactions in American companies. The committee is housed in the finance department, but is also composed of representatives from various authorities and the ministries of justice, defense and internal security. The CFIUS verification process is secret. The committee seldom commented on the actions it took or publicly explained the reasons for blocking certain deals.
CFIUS is most commonly associated with the defense sector, but in recent years Congress has greatly enhanced the committee’s legal authority to review a wider range of transactions. Experts say the committee focused more on the issue of access to US data.
Officials refused to disclose the name of the Chinese entity attempting to acquire the fertility clinic or the destination of the acquisition attempt.
John Demers, director of the Department of Justice’s national security division.
However, the causes of government concern lie at the heart of the great power competition between the United States and China and the state of the art in medicine.
John Demers, head of the DOJ’s National Security Division and one of the country’s top espionage hunters, declined to confirm the specific CFIUS action. However, in an interview with CNBC, he spoke broadly about why the US government is suspicious of Chinese ownership of American fertility clinics.
“Your genetic material, your biological material, is one of the most intimate pieces of information about you, who you are, what your vulnerabilities may be, what your diseases have been in the past, what your family history is,” he said.
He also said the United States has two concerns when it comes to Chinese ownership of US fertility clinics.
First, officials believe the Chinese can Use the data from fertility clinics to compile a large database of biological information that can be used against Americans.
“This can be used from a counterintelligence perspective to either force or convince you to help the Chinese,” Demers said. “I would be concerned that the Chinese would get sensitive personal information about individual Americans, be it their financial information, their health information, their genetic information, all of which from an intelligence perspective could target that person.”
Second, Demers fears that the Chinese could use fertility clinic data to create a military threat.
“I’m not saying we saw that, but the worst case scenario would be developing a biological weapon,” Demers said. “If you had all the data on a population, you could possibly see what the population is most vulnerable to,” he said, “and then develop something that takes advantage of that vulnerability.”
While Demers refused to confirm the blocked takeover, former deputy national security adviser Mira Ricardel told CNBC that CFIUS had taken action.
“These are not things to be reported about,” said Ricardel, who served on Trump’s National Security Council in 2018. “It’s a confidential process. But I understand that there has been at least one case.” When asked if the Chinese would try to buy a fertility clinic, Ricardel said, “Right.”
Former Deputy National Security Advisor Mira Ricardel
She said the US had many possible reasons for rejecting such a deal.
“They would say no because they have concerns about how the data is being handled or whose data it might be, or perhaps the location of the clinic, how big it is, whether they are affiliated with other organizations that we may not have insight into “Said Ricardel.
Despite these US government concerns, a CNBC investigation found that four of the dozen or so fertility clinics in the San Diego area already have investors with ties to China. The San Diego area is home to some of the most sensitive military facilities in the country, such as Marine Corps Air Station Miramar – “Fighter Town USA” made famous in the movie “Top Gun” – and Naval Base San Diego, the home port of the US Pacific Fleet.
Chinese investors have many legitimate business reasons to be interested in American fertility clinics.
Fertility treatments are very popular in China after the policy of preventing couples from having more than one child was lifted. In the years before Covid-19, Chinese customers flocked to American clinics that are considered to be the best in the world. The fertility business, where wealthy customers often pay cash for expensive procedures, can be exceptionally lucrative. In vitro fertilization cycles alone can cost well over $ 10,000, and clinics may charge additional fees for other procedures. That makes American clinics mature takeover targets.
Several people in the industry say the US government is overreacting to the presence of Chinese owner groups.
Dr. Samuel Wood is the director of Fertility Services and the president of Gen5 Fertility, a fertility clinic in San Diego.
When asked if he shares the government’s concern, Dr. Samuel Wood, President of Gen 5 Fertility in San Diego: “I really don’t know. Remember, the only reason these investors got interested was because Chinese patients came to the US”
Wood has practiced medicine at two Chinese-owned fertility clinics in the San Diego area. He said Chinese investors are drawn to the lucrative business model of the clinics themselves. “I really don’t see any security risk at all,” said Wood.
He said Gen 5 has a Chinese investor who owns a stake in the management company that runs the business side of its practice. He also said that Gen 5 keeps all medical records in-house. “We control everything. All of the employees here work for me. And none of them work for the investment company.”
Still, Wood said American doctors should be careful about Chinese money pouring into the industry.
“Overall, I think the net effect was not negative,” he said. “But we have to be careful in the future that we all behave ethically towards our patients and that money does not affect what we do.”
The 2019 annual report of the U.S.-China Economic and Safety Review Commission provides a context as to why the government may be focusing on fertility clinics. Chinese fertility investments come from investors with ties to Beijing making a concerted effort to collect American data more generally.
The commission found that “the collection of US personal and health data by the Chinese government and companies poses national security risks”.
The report described China’s intense efforts to gather data through partnerships with U.S. companies and universities, as well as through the use of illegal techniques such as the hacking of healthcare company Anthem in 2015. This attack gave the hackers access to up to 80 million patient files.
“China’s access to US health data gives China the tools to harness Americans’ personal health data and oust US leadership in biotechnology and other areas,” the commission noted. “The protection of US health data is a serious concern, particularly given the Chinese government’s cyber espionage and hacking campaigns aimed at obtaining sensitive personal information from the US, including personal health data and clinical trial data.”
Gen5 Fertility Clinic in San Diego.
In 2017, China passed a national intelligence law requiring the Chinese and organizations to work with Chinese state intelligence agencies. This worries US critics, who say that Chinese businessmen are now legally required to assist Chinese intelligence agencies if the government asks them for data, analysis or other assistance.
The Chinese Embassy in Washington did not respond to an email request for comment. In September, The Washington Post reported that a Chinese company affiliated with the People’s Liberation Army is collecting “open source” information on senior individual members of the US military, including “biographies and service records of aircraft carriers and aspiring officers in the US Navy” and “profiles and family cards” of Executives including relatives and children.
Given the complexity of the law, interlocking ownership, and the latest science, the challenge for the US government is to figure out which fertility center transactions are legitimate deals and which are not.
At the Justice Department, Demers said the government is focusing on the possibility of Chinese collection of US data. “If all they did was run this business as a going concern and get the profits from it, that would be fine,” Demers said.
But when it comes to fertility clinics, he has specific concerns.
“The Chinese approach is to gather together [the genetic information] now and then what to do with it later. “
As Chinese efforts have been made in recent years to get sensitive personal information out of the United States, a wave of Chinese investment by Chinese customers in US fertility clinics has followed. CNBC’s analysis shows that several fertility clinics in the San Diego area already have connections with China – connections that are not necessarily obvious to their customers in California.
Take the example of HRC fertility in California. Although this is not apparent on the practice’s website or in its offices, the business unit behind the medical practice has an intricate and global chain of ownership that stretches back to China and an executive who is a member of the Chinese Communist Party.
One of HRC’s offices is in Oceanside, California, just a 14-minute drive from the entrance gate of Camp Pendleton, the main US Marine Corps base on the west coast.
The HRC Fertility office in Oceanside, CA.
In 2017, the management rights to HRC Fertility were acquired by an investment company in the British Virgin Islands that was itself owned by a Chinese coal accelerator company. Later, a new company called Jinxin Fertility took those assets, combined them with a number of medical facilities in mainland China, and floated the new company on the Hong Kong Stock Exchange in 2019 as part of a $ 390 million IPO.
Jinxin’s chief executive officer is Wang Bin, a member of the ruling Chinese Communist Party and former chief executive of a Chinese state-owned company.
HRC said the coal mining company’s subsidiary was merely a “convenient investment vehicle”. The company said the coal company in turn owns another Chinese entity, Yongtai Group Co, Ltd., which owns a wide range of businesses.
In a statement, HRC told CNBC that the company “complies with all relevant federal and state laws and regulations for the security of patient data. We take patient information and data security seriously and do not share patient information with our parent company. Go beyond requirements and put it.” Third-party experts to regularly confirm the security of our patient data. “
The company announced in recent months that it has “undertaken significant restructuring to address concerns about China” and is storing all US patient records on servers in the United States.
The location of the clinic near a military base is a “meaningless coincidence”.
yet, Companies that make acquisitions of other companies that have little to do with the underlying business are the types of transactions that can affect the US government.
Demers stated that the US is reviewing transactions to separate those who are legitimate business deals from others who may be more threatening by looking at the business reasons for the transaction.
“If there’s anything strange, you have a company that buys something in one area of the market that is in a completely separate area from its current business. Corporations don’t usually do that. Right? So that’s something we look into would look at. “he said.
When asked what he would think of a subsidiary of a Chinese mining company buying an American fertility chain, Demers said he was unable to comment on a single transaction.
But he said, “That’s the kind of dissonance that would be very interesting to us.”
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