Treasury, Justice Officials Pushed for Sanctions on China Over Cybertheft

President Barack Obama noted at a news conference this month that the United States has seen “some evidence” that Chinese government hackers have reduced their pilfering of U.S. companies’ intellectual property and sensitive data.

But, he added, they have “not completely eliminated these activities.”

Although some researchers say the hacking activity has plummeted, officials at the Treasury and Justice departments and at the National Security Council have been pushing to impose economic sanctions on several Chinese firms that have benefited from past thefts of U.S. firms’ commercial data.

Over the past year, they have advocated the use of a 2015 executive order on cyber-sanctions that would allow the government to sanction individuals and companies that were enriched by material hacked from the computer networks of American businesses.

“It’s about specific justice for specific victims,” said one U.S. official, who, like others interviewed, requested anonymity to discuss internal deliberations.

A sanctions package that names specific Chinese companies has been ready for more than a year. But other senior officials in the State Department and within the National Economic Council have been opposed, largely for diplomatic and timing reasons. These officials did not want to risk torpedoing a global warming accord with China. At other times, it was concern about adding to tensions over China’s activities in the South China Sea.

The administration was close to pulling the trigger on the sanctions last year but drew back after Chinese President Xi Jin Ping reached an agreement with Obama that his country would not conduct such activity, and would set up a high-level joint dialogue on cybercrime and cooperate in investigations.

Dmitri Alperovitch, co-founder of the cybersecurity firm CrowdStrike, said China’s commercial hacking dropped 90 percent over the past year after the agreement. “I think this drop in activity after the threat to use sanctions has been the biggest accomplishment in cyber in the last 30 years,” he said.

Others note, however, that the indictments of five Chinese military hackers for economic espionage also played a role in changing China’s behavior.

But Beijing’s cooperation in law enforcement matters has not been optimal, officials said. And the Chinese government has not taken action against those who hacked U.S. companies and stole their intellectual property or pricing information, they said.

If the Obama administration were to impose economic sanctions on Chinese companies, that would be a gift to President-elect Donald Trump, said James Lewis, a cyber-policy expert at the Center for Strategic and International Studies. “It would be a chit he could trade in talks with the Chinese,” he said. “He could offer to lift sanctions in exchange for some economic or trade concession.”

At this point, the use of the order against China is highly unlikely, officials said.

“It’s hard to see the administration picking that fight with China with so few days left in the administration,” a second senior official said.

The Trump administration, however, could choose to use it.