cross-posted from: https://lemmy.sdf.org/post/31647886
Elon Musk’s aerospace giant SpaceX allows investors from China to buy stakes in the company as long as the funds are routed through the Cayman Islands or other offshore secrecy hubs, according to previously unreported court records.
The rare picture of SpaceX’s approach recently emerged in an under-the-radar corporate dispute in [the U.S. state of] Delaware. Both SpaceX’s chief financial officer and Iqbaljit Kahlon, a major investor, were forced to testify in the case.
In December, Kahlon testified that SpaceX prefers to avoid investors from China because it is a defense contractor. There is a major exception though, he said: SpaceX finds it “acceptable” for Chinese investors to buy into the company through offshore vehicles.
“The primary mechanism is that those investors would come through intermediate entities that they would create or others would create,” Kahlon said. “Typically they would set up BVI structures or Cayman structures or Hong Kong structures and various other ones,” he added, using the acronym for the British Virgin Islands. Offshore vehicles are often used to keep investors anonymous.
Experts called SpaceX’s approach unusual, saying they were troubled by the possibility that a defense contractor would take active steps to conceal foreign ownership interests.
Kahlon, who has long been close to the company’s leadership, has said he owns billions of dollars of SpaceX stock. His investment firm also acts as a middleman, raising money from investors to buy highly sought SpaceX shares. He has routed money from China through the Caribbean to buy stakes in SpaceX multiple times, according to the court filings.
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Federal law [in the U.S.] gives regulators broad power to oversee foreign investments in tech companies and defense contractors. Companies only have to proactively report Chinese investments in limited circumstances, and there aren’t hard and fast rules for how much is too much. However, the government can initiate investigations and then block or reverse transactions they deem a national security threat. That authority typically does not apply to purely passive investments in which a foreign investor is buying only a small slice of a company. But experts said that federal officials regularly ask companies to add up Chinese investments into an aggregate total.
The U.S. government charges that China has a systematic strategy of using even minority investments to secure leverage over companies in sensitive industries, as well as to gain privileged access to information about cutting-edge technology. U.S. regulators view even private investors in China as potential agents of the country’s government, experts said.
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It’s not uncommon for foreigners to buy U.S. stock through a vehicle in the Cayman Islands, often to save money on taxes. But experts said it was strange for the party on the other side of a deal — the U.S. company — to prefer such an arrangement.
ProPublica spoke to 13 national security lawyers, corporate attorneys and experts in Chinese finance about the SpaceX testimony. Twelve said they had never heard of a U.S. company with such a requirement and could not think of a purpose for it besides concealing Chinese ownership in SpaceX. The 13th said they had heard of companies adopting the practice as a way to hide foreign investment.
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The new material adds to the questions surrounding Musk’s extensive ties with China, which have taken a new urgency since the world’s richest man joined the Trump White House. Musk has regularly met with Communist Party officials in China to discuss his business interests in the country, which is where about half of Tesla cars are built.
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The Delaware court records reveal SpaceX insiders’ intense preoccupation with secrecy when it comes to China and detail a network of independent middlemen peddling SpaceX shares to eager Chinese investors. (Unlike a public company, SpaceX exercises significant control over who can buy into the company, with the ability to block sales even between outside parties.)
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The experts said the court testimony is puzzling enough that it raises the possibility that SpaceX has more substantial ties to China than are publicly known and is working to mask them from U.S. regulators. A more innocent explanation, they said, is that SpaceX is seeking to avoid scrutiny of perfectly legal investments by the media or Congress.
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Musk’s business interests in China extend far beyond SpaceX’s ownership structure — a fact that has drawn criticism from Republican lawmakers over the years. In 2022, after Tesla opened a showroom in the Chinese region where the government runs Uyghur internment camps, then-Sen. Marco Rubio tweeted, “Nationless corporations are helping the Chinese Communist Party cover up genocide.”
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In recent years, the billionaire has offered sympathetic remarks about China’s desire to reclaim Taiwan and lavished praise on the government. “My experience with the government of China is that they actually are very responsive to the people,” Musk said toward the end of Trump’s first term. “In fact, possibly more responsive to the happiness of people than in the U.S.”