Parallel trends such as globalization, digitization of the economy, and technology advancement have collectively resulted in an increasingly rapid capability for technology to be innovated and disseminated. While largely these processes are positive, they do result in lower barriers to technology misuse by either states or non-state actors. Measures such as UNSCR 1540 in 2004, which requires all states to adopt export controls and other measures to prevent nonstate actor involvement in proliferation, were a recognition and embodiment of this challenge particularly to the extent that non-state actors were involved in technology diffusion for terrorism or weapons of mass destruction end uses. In the new era of strategic competition, it is clear that states have the ability to take advantage of technology digitization and diffusion to support their military and WMD end uses of concern. In this context, and in the course of the work to generate this guidance, CNS has identified the following elements that states should implement. Enact a military and strategic end use control which can be used in relation to Russia and China. Globally, the existence of military end use controls have generally lagged behind weapons of mass destruction end use control perhaps because the latter is an expressed requirement of UNSCR 1540. Promulgate lists of entities of concern in Russia and China such that companies and financial institutes must refer cases involving such entities to authorities. In Russia, for example, it is known which institutes are thought to be involved in the Novichok program, for example. And in China, it is known which organizations and institutes are involved in the nuclear weapons program (the China Academy of Engineering Physics) and missile programs (the China Academy of Launch Vehicle Technology). These lists of organizations include military linked universities, for example. Set out standards for cybersecurity of export-controlled information that technology holders and exporters must meet. Presently, few countries address the cybersecurity of export-controlled information. Ensure nonproliferation controls are being implemented in universities and research institutes. Consider implementing vetting and deemed export controls in pursuit of this objective. Presently, many countries do not have adequate controls in place to safeguard sensitive technology held in universities and research institutes. Furthermore, in many countries, these actors have not been adequately engaged with regards to export controls. Acquisition Methods The acquisition methods across both countries use both licit and illicit means to obtain foreign technology or expertise in strategic sectors. The line between ordinary cooperation and harmful transfers is often the presence of state interest in the transfers. Technologies that can be used by militaries and intelligence services are highly valued and given the sensitivity of such acquisitions, illicit means using front companies, false assertions of end use, and general plausible deniability of government links are attempted. Thankfully for due diligence officers and companies, these patterns are generally less sophisticated than one may assume and often exhibit poor ‘tradecraft’. As such, certain patterns emerge so that companies can identify transfers that may present financial, legal and reputational risks. This section first lays out the commonalities between the two countries with a discussion of mutual tactics for technology procurement. This section analyzes the different methods each country employs in a country-specific context. This section references case studies published as part of this guidance. The list of case studies is as follows: Common Acquisition Trends Licit Purchases Due diligence efforts undertaken by industry professionals and government employees focus most frequently on the illicit transfer of dual-use technology to a foreign country. However, it is the essence of dual-use goods to have legitimate uses as well. To leverage the legitimate uses of these goods to procure something that still has military implications, both China and Russia do acquire strategic technology legally including through open procurement. This specific method likely overlaps with other methods of acquisition where the reason for the legal exchange of goods is either fabricated documents, a dubious end-user hiding their intent, or due to joint or collaborative settings. As seen in Case Studies 24, 25, 26, 27 and 28, a common tactic of acquisition for Russian entities is to licitly purchase from abroad. This acquisition method can overlap with other methods, particularly the acquisition of production components from abroad. In Case Study 24, there is an example of this where there was a licit purchase of machinery to a Russian entity working on a hypersonic flight project. In Case Study 25 we see the example of calibration devices sold by an American company and then sold on again to the Russian security services. In Case Study 26 we see the sale of a convection oven for production of electronics from a German company to a Russian defense entity. These licit sales are often associated with European companies selling to Russia’s military industrial base or intelligence services, German companies in particular. Due to the Military-Civil Fusion strategy being employed by the PRC, many dual use purchases which are seemingly benign in nature may end up with linkages to Chinese military or strategic institutions. Licit purchases end up having dual use implications in a Chinese context commonly in university settings. One example of this is in case study 16 when a joint project on a quantum communications network between an Austrian university and a Chinese university resulted in the development of dual-use quantum encryption network in the PRC using multiple American sub-components. While these cases may be less prevalent due to the due diligence of industry representatives, there is a need to apply similar due-diligence measures to educational or joint venture settings in a Chinese context to prevent the misuse of licit purchases. Additionally, case study 17, wherein German companies provided marine diesel engines to the Chinese navy, showcases that legal compliance with export controls on dual-use technologies is not always enough to prevent risks to reputation of the company involved or risks to national security. Illicit Purchases via Front Companies and Intermediaries One of the most common methods to acquire foreign technology illicitly is using front companies or other intermediaries to transfer goods. While this can look different depending on the context, the general allure for this method is to use a front company in a location that is less likely to receive scrutiny when applying for a license of a controlled item. Front companies can be used for financing, transfer, and reshipment, so it is important that due diligence efforts adequately screen for these cases, paying special attention to the geography of the buyer. As seen in Case Studies 18, 19, 21, 22, 23, 30 and 31, a common tactic to procure goods is the use of front companies and intermediaries, particularly for Russia. The use of fronts and intermediaries, such as freight forwarding and nominal wholesalers, can mask when a good is destined for a defense industrial entity or defense research center. These networks can be familial as in the Brazhnikov case (Case Study 19), but do not necessarily have to be. As seen in the Fishenko case (Case Study 23), companies engaged in illicit exports via co-conspirators running front companies or intermediaries abroad can operate for years depending on their level of sophistication and operational security. -The PRC uses several front companies to transship goods to mainland China. The main reason for this is the distinct licensing requirements between the PRC and surrounding areas which are trading hubs, such as Hong Kong, Macau, or Indonesia. There have even been criminal cases where the defendant has revealed that they are trained to transship into Hong Kong to be more likely to get a license approved, as was the case in the investigation of Shanghai Breeze (Case Study 12). Front companies have been used in the Chinese context both as a transshipment hub and an alternative financing scheme to obfuscate government connections, which was also highlighted in the Shanghai Breeze case study for using a secondary front company in Hong Kong to finance the purchased goods. For that reason, it is important to be aware of instances where the financing company may be different than the front company being used as a shipping destination. Misrepresentation of Package Contents One strategy both Russia and China can employ to acquire technology is to misrepresent the contents of a shipment. This can either be done intentionally by a seller attempting to make a transaction without a license or unknowingly by an employee of the company acting alone. These instances can be hard to catch as recruitment of personnel within companies is hard to track. Additionally, customs officials may not be adequately trained in identifying specialized equipment to be distinct from what was claimed to be sold. As seen in Case Study 22, the Flider Case, when transferring packages containing controlled goods the seller wrote “power supplies” on the package. By labeling the packages as power supplies, spare parts or other goods, the seller is attempting to make the package not raise the suspicions of customs or border officials and avoid inspection. The use of “power supplies” in that instance preys on the fact that many customs and border officials are undertrained and are not capable of recognizing many dual use goods. In the event the package is inspected, the average customs official would not necessarily be able to differentiate power supplies from another electronic good. This is a common smuggling technique for small components and is likely much more widespread, but given the nature of the data on this, it is difficult to map how extensive it is. -Misrepresenting the contents of a package frequently requires an insider within the company of interest to be able to fabricate documents for the exchange. Thus, to understand how the PRC utilizes this method, it is important to consider it in the context of their broader foreign recruitment strategies and the role of the Thousand Talents Plan. Specific examples have included case studies 2 and 7 wherein representatives working at companies in the US forged documents as well as used insiders at foreign subsidiaries of American companies to misrepresent the package at the transshipment destination in the country the subsidiary was based in. Acquisition of Production Components In assessing the various methods of technology acquisition, the research team found there was value in analyzing both the acquisition of equipment used in the production of strategic technologies and the strategic technology itself. This distinction can glean insights about the chokepoint technologies that the PRC and Russia are most reliant on foreign partners for or which technologies the countries are trying to indigenize. Certain sectors, such as additive manufacturing, are more easily defined as components versus completed items. In a completed item, the product is fully manufactured and sold as one item. Component pieces are the items required for the construction or manufacture of the aforementioned item. In sectors such as semiconductors, it is harder to pin down because the finished product of the semiconductor will be only a component in a broader piece of equipment for another industry. For this reason, this section prioritizes those components that are utilized for a separate end-use or used in the production of a strategic product. In Case Study 31 CNS discovered that poison labs run by the Russian government were purchasing the components suitable for the creation of nerve agents from abroad. Given limits or constraints within Russia’s own chemical industry, precursors required for the manufacture of these poisons was done from abroad. This meant the use of intermediary wholesalers and suppliers for dual use goods, that on paper had mundane applications as pesticides and other purposes but could also be used to create tools of assassination. This is also seen in Case Study 22, the Flider case, where microelectronics used for drones and potentially other sectors were procured from abroad. Russia, as discussed, is particularly reliant on the acquisition of production components from abroad given the idiosyncrasies of the country’s industrial development. Acquisition of production components do not always have to be illicit. In fact, in the 2014-2022 time period, many Russian defense manufacturers licitly purchased production equipment from Italian and German companies as seen in Cases Studies 24 and 26 This approach of focusing on acquiring dual use components is seen in a myriad of Russian cases. The nuances are explored in more depth later in this section. Several things could be categorized as production components, but this section is simply to highlight that there are tendencies for the PRC to acquire or attempt to acquire an individual component rather than a finished product. In many cases, this is easier to do, but in the Chinese case this is largely due to the intent to be able to refabricate and indigenously produce strategic technologies. Many times, a single technological component is what is delaying the development of other scientific advancements, and in these instances, the PRC may target that instead. One such example in case study 1 is the theft of Micron’s Direct Random Access Memory (DRAM) technology that is used to develop more advanced semiconductors, which in and of themselves are a component for larger supercomputers or aerospace devices. While this example was an illicit transfer, it is important to note that in other fields, such as advanced manufacturing, inputs for specific manufacturing devices with dual use implications should be considered. Namely, as new materials for additive manufacturing are developed with increased resistances or advanced properties, those inputs should be considered in the context of what the PRC industry can produce with them Cyber Theft Given the digitization of the global economy and manufacture, cyber security theft and hacking are playing a particularly important role in relation to technology transfer at present. While most industries are applying cyber-standards and protections for their proprietary information against more common cyber-threats, advanced, coordinated hacking attempts such as those by Russia and PRC to obtain foreign technology persist. The open-source literature on PRC use of this acquisition method is plentiful. The technique is so widespread there have even been two examples where provincial level (rather than national level) state security offices in the PRC have hired hackers and software experts to develop malware and advanced phishing techniques targeting a variety of industries and organizations. These operations typically take place over many years and can involve several countries. Case studies 3 and 8 exemplify these. One included the Jiangsu Province Ministry of State Security (JSSD) and targeted aeroengine technology most specifically. The other involves the Hainan State Security Department (HSSD) and focused on a variety of sectors from genetic sequencing to submersible vehicle technology. As cyber-attacks have targeted digital information such as chemical formulas, engineering schematic diagrams, and business information used to secure third-party contracts, industry leaders must prioritize the cyber-security of strategic information. This is particularly the case with Russia, where the intelligence services are known to target contractors working on aerospace and other military technologies. University Collaboration As universities are hotbeds for innovation and research, many strategic technologies are jointly developed with universities, especially those that are receiving grants for government sponsored research. This is true of the United States but not to the same extent that MCF strategies in the PRC leverage these resources. While there are examples where a Chinese university has collaborated with an American or other foreign university to develop a technology that can then be applied for dual-use applications in the PRC, such as is the case with the quantum telecommunications network technology, it is not the only form of strategic collaboration utilizing universities. Frequently, university collaboration takes place when a researcher from the PRC goes to a technology holding country to work or study at another university and performs research in a strategic field with the intent of returning to the PRC to advance their strategic sector. This can, and has, included instances where the collaborator was tasked with performing similar research for both American and Chinese government grants simultaneously. This is exemplified in the case studies 4 and 5 involving researchers from Texas A&M and Ohio State University, focusing on aerospace and medicine respectively. Additionally, case study 16 highlights how the outputs of university collaboration which utilizes strategic technology from abroad can result in potentially dual-use systems being developed by foreign nations. This is to say that even seemingly benign applications of strategic technologies can be used for military end uses once the university collaboration has completed. In this case study, an encrypted communications network may be used for banking information, but is equally capable of transferring military information. In the Russia context, there are examples of collaboration between foreign scientists and engineers with Russian scientists and engineers suspected of working on Russia’s hypersonic glide vehicle projects. Joint papers and patents show links between key aerospace centers involved in weapons development and western actors. Individuals from the United States and European countries who collaborated on topics such as combustion, fuel injection and other problems faced by vehicles travelling over Mach 5. It should be noted that most all collaborations occurred before 2014. Russia has leadership in this space given the resources and manpower dedicated to the problem, but foreign collaboration still allows scientists and engineers to exchange notes with foreign colleagues and potentially overcome bottlenecks. There is not necessarily anything wrong with academic cooperation with Russian nationals, but organizations, must be careful to vet whether or not the knowledge being used can be used to design, produce or manufacture weapons in the future Acquisition Trends in the China-Specific Context Attempts to acquire trade secrets and foreign expertise or technology are not uncommon to the PRC. While there are many methods by which many countries attempt to obtain export-controlled technologies, there are certain strategies the PRC employs that are notable trends. This section details technology acquisition methods by which the PRC has attempted to acquire said technology or expertise. The PRC, however, does not employ all these tactics equally in frequency or efficacy. Some methods of acquisition have even been outlined in their Five-Year Plans for science and technology. Namely, recruitment strategies such as the Thousand Talents Plan are emphasized as a method of bolstering their manufacturing base by relying on foreign human capital. Investment and Acquisition Financing As a direct method for the acquisition of foreign technology, investment and acquisition financing are not the primary tool used by the PRC. It is, however, worth noting that the Belt and Road Initiative being undertaken by the PRC does utilize financing schemes to gain leverage to set up infrastructure projects (namely around ports, but not exclusively) and create opportunities for Chinese businesses. While not necessarily problematic, as foreign direct investment is a routine practice states engage in, the end result in many of these BRI cases is an attempt to gain ownership of foreign infrastructure or investments. Ports are the primary target in this scheme as they are part of the PRC’s String-of-Pearls strategy for securing trade routes. Another way the PRC has utilized acquisition financing to attempt to obtain companies producing specialized components that they cannot yet indigenously produce. These types of acquisitions are typically blocked by national governments if they are in a strategic sector. One such example was the attempted acquisition of Arm, a British semiconductor firm, by the PRC in 2021 which was ultimately blocked by the British government. Joint Ventures It is not uncommon for the PRC to enter into joint ventures with third party countries to develop certain technologies. This strategy can be employed either to jointly develop specific research or as a conduit for recruitment to Chinese companies or university positions to further research strategic topics for the Chinese government, such as in the case of the Texas professor with connections to NASA research (case study 4). The main consideration for companies entering joint ventures with the PRC is the control and protection of jointly developed intellectual property if it is strategic in nature. Joint ventures can also lend themselves to other economic or industrial espionage efforts undertaken by the PRC through cyber theft or recruitment of personnel even if it does not directly result in the transfer of intellectual property. Recruitment of Personnel or Students Hand in hand with university collaboration is the strategic attempt to recruit expertise from foreign nations to supplement the labor required to expand strategic sectors in line with the PRC’s national goals. The recruitment strategies of the PRC tend to prioritize those working at laboratories or in university settings, frequently targeting students as well as existing experts. This is not to say that recruitment of personnel within companies to steal technology or move to China with their expertise does not happen, just that many of the more systemic efforts are aimed at students or personnel in research institutes/labs actively developing new technologies. The primary means of recruitment is the Thousand Talents Plan (TTP). The TTP leverages educational and employment opportunities in the PRC to attract foreign talent to work in China. Additionally, the TTP has been connected to instances of former TTP affiliates researching at universities outside of China with the goal of returning with information on strategic technology or to recruit additional members. CNS case studies 5, 4, and 6 highlight examples with researchers linked to the National Institute of Health, NASA, and the Cleveland Clinic, respectively. Frequently the individuals who are operating in the US as part of the TTP could be identified with proper vetting controls for researchers in strategic fields. Occasionally these individuals leverage their foreign work for higher positions at the universities they return to in the PRC which may help in identifying the flow of strategic information if a TTP representative has been part of a strategic project in the US or another foreign country. Outside of the TTP, there are other examples of individuals claiming they were recruited by a contact in the PRC to ship technology to the PRC for duplication, though these cases are less frequent. In this instance, case study 11, the woman that attempted to ship jet plane parts from Florida to the PRC referred to her contact as a ‘technology spy’. University Collaboration – China-Specific Nuances The importance of university collaboration in tech and knowledge transfer is especially true of the PRC wherein the university system in strategic fields work in tandem with the government institutions and private companies that are active in the same space. Within the PRC, there is a high level of coordination between government, industry, and universities. Due to a high level of state planning, there are pipelines from university into jobs for those being educated in strategic fields. Because of this, there are often geographical hubs within the PRC for specific strategic sectors where the top universities and corporations are in the same province or city. This can be helpful in guiding effective due diligence when considering whether to supply a foreign university with strategic technology. Chinese Strategic Entity Procurement Strategies Adjacent to the methods used for procurement of technologies from abroad is the recording of such data. One way these exchanges are captured is through the procurement records. To understand this process in a Chinese context, it is important to recognize that Chinese procurements are largely bureaucratic in nature. Since China can leverage any instrument of the state in pursuing state goals, such as technology indigenization, there results an oddly transparent system procurement process. This is especially true following domestic pushes to fight corruption and maintain party legitimacy.  In order to understand Chinese strategic entity procurement strategies, CNS examined three such entities; the Chinese Academy of Engineering Physics, which is the key nuclear weapons laboratory in China; the Chinese Academy of Launch Vehicle Technology, which is the key missile-related entity in China; and the Chinese National Nuclear Cooperation, which is one of the key entities responsible for construction of nuclear facilities in the country. One might assume that the details of procurement of these entities was closely held given the nature of their work. However, procurement data for all three entities – as well as literally thousands of other state-linked entities including the military – was obtained on a third-party website. In closer examination, it turns out that in at least some cases these entities themselves publish details of their procurements. Specifically, the entities publish a summary of every tender regardless of whether the tender is for sole source or for open competition. In many cases – or perhaps all cases – a follow-up notification is published which names the bidders, winners, and prices quoted. Interesting also is that certain entities appear repeatedly as the tendering agency. It seems that periodically each strategic entity must choose an entity or entities to run its tendering and procurement process – a process itself which is run on the basis of open competition through a tendering process which is publicly notified. This means that a handful of key Chinese companies are responsible for running the procurement tenders for each strategic entity. In practice, it appears that these organizations specialize in this and act on behalf of many Chinese state-owned and strategic entities. Given this, identifying involvement of such organizations in transactions is an important route to identify potential linkages to programs and end uses of concern. For example, more than 30% of tenders reviewed involving the China Academy of Engineering Physics (i.e., the Chinese nuclear weapons laboratory) mention the entity Sinochem Commerce Co., Ltd. A further 19% mention Xinhua Tendering Co., Ltd (which sometimes translates as Xinhua Bidding Co., Ltd (新华招标有限公司). Other tendering companies were also identified including one which appears to be a subsidiary of CAEP. Acquisition Trends in the Russia-Specific Context Acquisition means of physical goods by Russia share many overlaps with those seen in the China context. Licit purchases, illicit procurement via front companies and misrepresentation are all common approaches. This section explains the acquisition trends specific to the Russia context and the unique patterns of how front companies and intermediaries are used in the Russia context given the extensive use of these means. Like in the China context, these means are not employed in equal frequency or efficiency. Rather, the use of these techniques will vary in professionalism and sophistication given the individuals and entities involved. Acquisition of Complete Item In the Russia context, depending on the function of the purchaser or perceived sensitivity of the item, the entities may procure a completed item rather than components. For example, in Case Study 25 we see Military Unit 95006, who are accused of administering military bunkers in Moscow procured completed calibrators from the United States. In other cases, the line between production components and completed items can be blurry. This is best illustrated in Case Study 26, where the German Reflow ovens for manufacturing microelectronics was acquired as a complete unit. In this case the oven is procured as a single unit, but also serves production on sensitive items inside Russia. This is likewise relevant to Case Study 24, which involved procurement of completed production machinery by Russian defense entities. Front Companies and Intermediaries – Russia Nuances While not just a Russia phenomenon, the most common tactic employed to access restricted technology is to have another entity buy it for you. There is a more ‘Classical’ route often comprising a transfer to Finland and then via ferry or land border to Saint Petersburg. Case studies 20, 21 and 22 compiled by CNS all show this route remains workable despite its Cold War origins. In some schemes the proliferators will send the good to a country near Finland, such as Estonia, to raise fewer suspicions such as occurred in Case Study 22, the Flider Case. Once the items reach Russia, they can be distributed to buyers among the country’s weapons manufacturers and intelligence agencies. Now the primary concerns are former Soviet republics in the Caucuses and Central Asia. The even simpler option is for a Russian company to directly buy the good from abroad and then sell it to the country’s weapons manufacturers and intelligence agencies such as what occurred in the Novichok case. The true extent of this is difficult to ascertain given the built-in plausible deniability of dual-use goods, but analysis of Russian customs records and procurement documents by CNS indicates a large nexus between third parties and Russian entities of concern. This includes both defense contractors and Russia’s security services. These intermediary companies are often listed as ‘wholesalers’ which while technically true, does not mean they are not also a defense sub-contractor. Whether or not a buyer is also a defense subcontractor can often be identified with a simple Google search of their name against Russia’s relatively transparent contract bidding processes and a confirmation of the proper address. Footnotes  https://www.smallarmssurvey.org/sites/default/files/resources/SAS-IB17-Mechanics-of-trafficking.pdf  https://www.justice.gov/opa/pr/chinese-intelligence-officers-and-their-recruited-hackers-and-insiders-conspired-steal  https://www.cisa.gov/uscert/ncas/alerts/aa22-047a  CNS extracted data from Russian academic websites using Russian language keywords for hypersonic flight research. Non-aerospace related items were cleaned from the data with the remaining being analyzed by CNS.  Berger, Blake and Russel, Daniel, “Weaponizing the Belt and Road Initiative” Asia Society Policy Institute, September 2020. https://asiasociety.org/sites/default/files/2020-09/Weaponizing%20the%20Belt%20and%20Road%20Initiative_0.pdf  Thorne, Devin and Spevak, Ben,” Harbored Ambitions,” Center for Advanced Defense Studies, April 17, 2018.  https://www.bloomberg.com/news/articles/2021-07-07/u-k-to-examine-chinese-takeover-of-biggest-u-k-chip-plant#xj4y7vzkg  For example, the following case shows how an individual can be recruited for industrial espionage efforts and still not result in any IP transfer: https://www.justice.gov/opa/pr/chemist-sentenced-stealing-trade-secrets-economic-espionage-and-wire-fraud  https://www.justice.gov/opa/pr/california-woman-sentenced-50-months-prison-conspiring-illegally-export-fighter-jet-engines  See for example, “Graft watchdog steps up SOE investigations”, 17 Dec 2014. Available online at: http://www.chinadaily.com.cn/china/2014-12/17/content_19102591.htm (Accessed 30 August 2022)  https://www.fincen.gov/sites/default/files/2022-06/FinCEN%20and%20Bis%20Joint%20Alert%20FINAL.pdf  https://www.fontanka.ru/2021/03/05/69797849/  CNS has conducted granular analysis of hundreds of transactions between third parties with access to Western supply chains and Russian entities of concern.