Thursday, February 22

Democrats question semiconductor program’s ties to Wall Street.

Two Democratic lawmakers expressed concern Tuesday about former Wall Street financiers overseeing the Commerce Department’s distribution of $39 billion in subsidies to the semiconductor industry, saying staffers have raised questions about the creation and abuse of a revolving door between government and industry.

In a letter to the Commerce Department, Senator Elizabeth Warren of Massachusetts and Representative Pramila Jayapal of Washington criticized the department’s decision to staff a new office that oversees chip industry subsidies with former employees of Blackstone, Goldman Sachs, KKR and McKinsey & Company.

The lawmakers said the staffing decisions risked an outcome in which staff members could favor past or future employers and spend taxpayer money “on industry wish lists and not in the public interest.”

Trade officials rejected the characterization, describing the team of more than 200 people they have created to review chip industry applications as coming from diverse backgrounds including investment, industry analysis, engineering and project management. In a statement, a representative from the Commerce Department said the agency had received the letter and would respond through appropriate channels.

The criticism highlights the stakes for the Biden administration as it begins doling out billions of dollars to try to rebuild the country’s chip-making capacity.

More than 570 companies and organizations have expressed interest in getting a share of the funding, and it is up to the Commerce Department to determine which projects deserve funding. Biden officials have said they will judge the nominations on their ability to improve American manufacturing capacity and national security, as well as benefit local communities.

The department announced the program’s first award in December and another this month, both to chipmakers tied to military procurement. That funding totals less than $200 million, but the Commerce Department is expected to begin announcing larger grants in the coming months for major chip manufacturing plants, which could reach billions of dollars.

Given the amount of taxpayer money at stake, scrutiny turned to the individuals who will evaluate the requests. The director of the chip bureau, Michael Schmidt, is a former official of the Treasury Department and the New York State government. Other key staff members have extensive financial industry experience, including the chief investment officer, Todd Fisher, a longtime employee of global investment firm KKR.

Gina M. Raimondo, the secretary of commerce, also had experience in venture capital, running her own investment firm before serving as governor of Rhode Island.

The Commerce Department has said it will take a tough lens on the nominations and that its awards will depend entirely on the strength of the nominations and their ability to advance U.S. economic and national security interests. Supporters said staffing the team with investment analysts would give the government the experience it needs to analyze complex business proposals from chip companies.

“We here at the Commerce Department fundamentally need to be good stewards of taxpayer dollars and provide money only to those projects that need it to spur investment,” Raimondo told reporters in August.

Some critics have even criticized the Biden administration for imposing too many non-financial requirements on chip applicants, such as the need to provide affordable child care for its employees.

But in an interview, Warren said the Commerce Department created a potential ethical problem “unlike anything I’ve ever seen before” by deciding to hire a “who’s who of the most powerful firms on Wall Street.”

“This creates an opportunity for a serious conflict of interest,” Warren said.

“This small group of employees can use Wall Street’s revolving door to provide their former, and potentially future, employers an unfair advantage that is not in the public interest,” he said. “They can also benefit those employers’ current customers or use their position to build relationships and business opportunities with future customers.”

The letter from Ms. Warren and Ms. Jayapal requested more information about the ethics rules to which chip office employees were subject, including whether employees had submitted personal financial disclosure forms and whether the department had established any restrictions on where employees could work after leaving government. .

Warren and Raimondo have clashed in the past, including during the Commerce Department’s meetings with big tech companies. Warren has previously raised concerns about the possibility that federal chip subsidies could be used to buy back stock or otherwise enrich chip industry executives, and has proposed legislation to set tighter limits on the types of jobs that former government officials can hire after leaving public service.

In a letter last February responding to an earlier question from Ms. Warren about the chip program, the Commerce Department said it had “made ethics a priority in staffing CHIPS offices.” Employees would be screened for potential conflicts of interest and would receive mandatory ethics training, the department said.